Natural Gas News: Futures Bounce on Storage Report Miss but Forecast Stays Bearish
What Traders Were Expecting
Sentiment going into the report was firmly bearish and it had been for weeks. The prior week’s 103 billion cubic feet build had already widened the surplus and storage was sitting more than 7% above the five-year average. Forecasts were pointing to continued injections above seasonal norms. That backdrop drove prices to multi-month lows earlier in the week and left the market set up for a short-covering bounce on any deviation from expectations. That is exactly what happened Thursday. The move higher is a relief trade, not a trend change.
Production Is Still the Problem
Output in the Lower 48 is running near record levels around 109 to 110 billion cubic feet per day. Even a short-term dip to a 12-week low near 108.3 billion cubic feet per day did not change the picture. The drilling activity increase over the past year and continued infrastructure expansion are keeping supply on track to fill storage at a pace the bulls cannot overcome. I keep coming back to production as the main reason I cannot get constructive here. The numbers are not giving me a reason to change that view.
Weather Is Not Going to Save the Bulls
Forecasts are pointing to mostly mild conditions across large parts of the country over the next week. There are pockets of cooler air moving through the Midwest and Northeast but not enough to drive meaningful heating demand. Summer cooling is still weeks away. This is the dead zone for natural gas demand and the calendar is not going to change that. Traders waiting for a weather-driven spike in consumption are not going to find one in the near term.
The Global Side Is Not Enough
Power generation demand is running slightly higher year over year and that is a real number worth watching. Disruptions to LNG supply from major exporters and constraints in key shipping routes have the potential to pull more U.S. export demand into the picture. I am watching both. The problem is neither one has translated into a meaningful tightening of the domestic balance yet. Exports are helping. They are just not helping enough to offset what production is adding every day.
What I’m Watching
Every bounce in June Nymex Natural Gas is a selling opportunity until something changes on production or storage. Today’s move off the lows looks like what it is. A short-covering reaction to a smaller than expected build in a market that was deeply oversold. The surplus is still there. Production is still running near records. Weather is not providing a catalyst. Until one of those three changes, this market stays heavy and rallies stay limited.
