Prompt-month natural gas futures on the New York Mercantile Exchange (Nymex) neared $2.00/MMBtu last week but failed to push beyond a $1.943 Wednesday intraday high.
With technical and fundamental support lacking, the front month headed lower on Monday, slipping 7.9 cents to settle at $1.691, and was trading marginally flat Tuesday morning.
“The May Nymex contract has been stuck in a horizontal channel since late January with no clear direction on a breakout either way,” according to NGI’s Pat Rau, director of Strategy and Research.
The momentum indicators offered little help. Slow stochastics, the Relative Strength Index, Moving Average Convergence/Divergence and Bollinger Bands are all largely in neutral territory at the moment, Rau noted.
Rau said the $2.00 mark would be difficult to break without a meaningful change in the short-term supply picture. He pointed to Texas, which is awash with natural gas amid higher crude oil prices that likely would not incentivize producers to cut back in the oil-rich Permian Basin.
EBW Analytics Group senior analyst Eli Rubin said even as some producers have curtailed production, “weakening production scrapes to 10-month lows,” and “despite strengthening weather-driven demand,” natural gas futures are continuing to lose ground.
According to NatGasWeather, the latest American and European forecast models imply light demand through Friday as most of the interior portions of the country see “very nice” temperatures with highs in the 50s to 80s. However, a swing to more robust demand is expected from April 19-23 as colder-than-normal weather systems impact the Midwest and Northeast.
As for production, Wood Mackenzie data show output averaging 99.3 Bcf/d over the seven days to Monday and 100.3 Bcf/d over the last 30 days, compared to 104.5 Bcf/d during the same 30 days last year.
Rubin said “a bearish U.S. Energy Information Administration (EIA) storage surprise and falling demand opened the door for weakness to materialize.” The EIA reported a 27 Bcf injection into natural gas inventories in the week ended March 5.
“After Thursday’s EIA report, two of the subsequent three EIA weekly reports may near or surpass 85 Bcf — lifting storage surpluses and downside pressure on prices,” Rubin added.
Friday’s CFTC Commitments of Traders report showed professional speculators added to natural gas net short positioning for the week ended Tuesday, April 9.
Professional speculators reduced long contracts (-20,767) faster than short contracts (-12,850) in the week to modestly increase their net short position to 128,939 contracts, according to StoneX Financial Inc. senior vice president of energy Thomas Saal.
“With the small number of short positions that were added back, managed money accounts don’t seem to want to buy into any potential rally at this time," a market observer with technical knowledge told NGI. “However, given how close prices are to all-time lows, it could open up the market to short-covering at some point,” the market observer said.