A surprisingly bearish storage report triggered a brief plunge in prices following its release but buyers quickly stepped in, erasing some of those losses. While the downside held, losses remained limited as the market’s attention shifted to rising temps and recovering feedgas demand later this month. Large Injections are also being discounted by the recent pullback in output. The July contract settled yesterday’s trade 3.9 cents lower at $3.677.
Production volumes have edged higher since falling to 103 BCF/day on Tuesday, Production improved to 104.7 BCF/day yesterday and is up another 1.2 BCF today at 105.9 BCF/day. Platts expects output levels to remain steady at about 105.6 BCF/day over the next 2 weeks. Month to date, production is averaging 104.8 BCF/day.
The EIA reported an injection of 122 BCF for the week ended May 30, coming in well above expectations of 111 BCF and surpassing historical comparisons,. Total gas in storage rose to 2.598 BCF, increasing the 5 yr avg surplus rising to 122 BCF while the year over year deficit narrowed to 288 BCF. This marked the 6th straight triple digit build, the longest streak since 2010, indicating an ongoing loose market balance.
Markets have tightened this week given rising temps out West and reduced production. Injection estimates for the week in progress range from 97 to 114 BCF which compares to last year’s build of 77 BCF and the 5 yr avg build of 87 BCF.
The market is currently a touch higher as extreme heat builds out West while a hotter pattern is expected across much of the country during the 11-15 day period. LNG feedgas demand remains steady at 14 BCF/day.
Technical Analysis
The July 25 natural gas contract rallied up to a new weekly high at 3.791 on Thursday but pulled back into the close to settle the day at 3.677, down .039.
Thursday’s session was the 3rd day of sideways trade following Monday’s strong gain as the rally has stalled at lower-3.700 resistance which is the 40 day moving average on the July daily chart.
A breakout above Thursday’s 3.791 high will turn the May 3.840 high into the next area of resistance followed by 4.000.
Daily continuation chart 10 day moving average support is at 3.540 today followed by the 40 day average at 3.405. If the 40 day average is tested, it will also close a gap created on the 60-minute chart at 3.450 on Monday’s open.
There is another open 60-minute chart gap at 3.200 created during expiration of the June 25 contract. This open gap will remain a bearish technical factor until closed.
Trend following indicators are bullish with bullish 10, 40 and 200 day moving average alignment and bullish short and long term trend following indicators.
Recent trade in a sideways range should be followed by a volatile breakout. Trend following indicators suggest to the upside but open gaps under the current price may indicate a downside breakout instead. The breakout direction should become evident in next week’s trade.
Moving Average Alignment – Bullish
Long Term Trend Following Index – Bullish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index - 55.65
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