The natural gas market continued to confound traders with another unexpected rally on Thursday after a government report showed a lower-than-expected storage build.
“Despite the low gas price environment, erratic price moves have been prevalent given all of the uncertainties surrounding the coronavirus and the oil market downturn. There are some positive drivers for natural gas, with Lower 48 production well off late-November highs and more cuts ahead,” Natural Gas Intelligence (NGI) said late Thursday.
Despite Thursday’s rally, analysts at Bespoke Weather Services are still bearish over the short-run and a little bullish over the long-run.
According to NGI, Bespoke said until there is a significant gain in demand via a reopening of the economy in the wake of COVID-19, the production story is bullish further out the curve toward winter. Liquefied natural gas (LNG) exports also face rough waters.
“The problem is the market sees how wide spreads are, at historically wide levels, and is reluctant to let the front fall too much relative to winter at this stage in the game,” Bespoke senior meteorologist Brian Lovern said. “That is fine for now, but with risks of LNG curtailments that can negate some of the production declines, and demand still struggling here and now, we would not be surprised if spreads ultimately widen more yet.”
US Energy Information Administration Weekly Storage Report
The U.S. EIA reported Thursday that domestic supplies of natural gas rose by 70 billion cubic feet (Bcf) for the week-ended April 24. That was in line with average expectations.
Total stocks now stand at 2.210 trillion cubic feet, up 783 billion cubic feet from a year ago, and 360 billion feet above the five-year average, the government said.
Ahead of the report, NGI reported that a Bloomberg survey of six analysts produced a range of 64 Bcf to 76 Bcf, with a median of 71 Bcf. A Reuters poll of 17 market participants had injections ranging from 59 Bcf to 80 Bcf. NGI also modeled an 80 Bcf build. Last year, the EIA recorded a 114 Bcf injection.
Short-Term Weather Outlook
According to NatGasWeather for April 30 to May 6, “A weather system will sweep across the Great Lakes and East today with showers and slightly cool highs of 50s to 70s. The South and Southeast will be near ideal with highs of 70s to mid-80s, while the Southwest into West Texas will be hot with 90s and 100s. The rest of the U.S. will be comfortable with highs of 60s to 80s. This weekend will warm into the upper 60s to 70s from Chicago to NYC for light demand, although remaining hot over the Southwest. Cooler air will spread across much of the US next week, including deep into the southern U.S. Overall, demand will be moderate to low.”
Total demand may pick up ahead of the seasonal lows in late May as the economy slowly begins to reopen, EBW Analytics Group said. Weather in the United States and abroad will play a critical role as the market pushes forward into summer, but the firm said the key near-term issue remaining is the “balancing act” between plummeting associated gas supply and the sharp virus-induced drop-off in structural gas demand.
On the supply side, EBW said the sharp contraction in associated gas may catch the market by surprise and briefly give bulls the upper hand as production falls 4.0-5.0 Bcf/d from March levels. Nevertheless, “current projections show May may feature the largest monthly injection on record, and add well over 100 Bcf to the year/year surplus.”
The daily chart pattern suggests solid support at $1.828 to $1.786. However, short-term resistance is $1.932 to $1.972. Holding between this retracement zones should produce a choppy trade.
Overtaking $1.972 will begin to set a bullish tone. If this creates enough upside momentum then look for a possible rally into $2.10 to $2.11.
This article was originally posted on FX Empire
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