Looking to the Futures: Natural Gas Woes Continue

As we discussed last week in Looking to the Futures, natural gas prices have been plagued by the perfect storm of lower demand and higher production throughout the withdrawal season. Lower-48 dry gas production has continued to rise and is nearing the record levels seen last October. Warm weather has decreased demand and caused rising inventories. In the bull camp an jump in U.S. electricity output could provide some support to nat gas prices.

BNEF data released yesterday shows U.S. nat gas production in the lower-48 states has ramped up to 100.1 bcf, up +5.1% y/y. On October 3^rd of last year, we saw a record high 103.6 bcf and we are not far off these production levels.

The Baker Hughes report from last Friday shows the number of active nat gas drilling rigs was unchanged at a 6-month high of 162 rigs in the week ending March 24^th.

The BNEF report released on Monday indicated Lower-48 state gas demand has decreased -0.8% y/y, down 82.9 bcf/day. LNG net flows to U.S. LNG export terminals were up +2.0% w/w, 12.9 bcf.

Warm temperatures have caused a dramatic drop in heating demand for natural gas. Prices reached their lowest point in over 2 years at the end of February and this January was the sixth warmest in the lower-48 U.S. States since 1895. As of March 20^th, nat gas inventories in Europe are 56% full, well above the seasonal 5-year average of 35%.

The EIA report released last Thursday was neutral for nat gas prices. U.S. inventories dropped -72 bcf, which just missed the expected drop of -73. The 5-year average draw for this time of year is -45 bcf. Natural gas inventories are currently +22.7% above their 5-year seasonal average.

Some support could be provided to natural gas prices after U.S. electricity output came in higher. Last Wednesday the Edison Electric Institute reported an increase in U.S. electricity output of +5.2% y/y to 74,499 GWh in the week ending March 18^th. Cumulative U.S. electricity output increased +1.2% y/y to GWh in the 52-week period ending March 18^th.

Looking at the daily chart for the Henry Hub Natural Gas April 2023 (NGJ23) contract we can see the new low set during yesterday’s session. Natural gas prices were not able to hold above the 20-Day Simple Moving Average and this level could act as a resistance point moving forward. The 50-Day and 200-Day SMA indicators are both trending downward which could indicate a continuation of the bearish trend.

Trading Central’s Daily Technical Analysis has support levels found at 2.0300 and 1.9500 with resistance levels at 2.2500 and 2.2900.

According to the CFTC Commitment of Traders Report released March 21^st managed money traders increased their long position by +15,380 contracts and decreased their short position by -25 contracts. The influx of buying could be attributed to short covering on profitable positions.

The 14-Day Relative Strength Index at 38.19% indicates the contract is in oversold territory.

March 29^th is the last trading day for NGJ23 and the majority of the volume has moved to the Henry Hub Natural Gas May 2023 (NGK23) contract. All positions in deliverable contracts must be offset no later than 3 business days prior to last trading day.