Natural gas prices showed surprising strength on Thursday given weakness in most asset classes most notably crude oil following reaction to new U.S. tariffs announced late Wednesday.
Supportive factors for natural gas include record high LNG exports, a late-winter storm moving across the central U.S, and a drop in production this week.
Late-winter heating demand and record high exports have overshadowed U.S. storage which showed a net injection during the month of March for only the 2nd time in the history.
The deficit of gas in storage relative to the 5-year average has narrowed from 230 Bcf or 11.8% to 80 Bcf or 4.3% over the past two weeks. Current gas in storage is 1,773 Bcf at the end of the withdrawal season. Next week’s injection should narrow this deficit even further.
Although inflows in U.S. LNG export facilities have decreased slightly this week to 14.9 Bcf per day due to maintenance at Sabine Pass, U.S. inflows set two back to back monthly records averaging 15.8 Bcf per day in March.
U.S. dry-gas production declined by 2.4 Bcf per day this week averaging 105.1 Bcf per day in April, down from a near record high of 106.2 Bcf per day in March. Production is expected to remain near record highs this year as spot prices encourage increased output from gas-producing areas such as Appalachia.
EU natural gas prices are trending at a 6-month low in response to the on-going tariff announcements. While U.S. and oversea prices have been trending in opposite directions, weaker prices in Europe and Asia may be a precursor to ensuing weakness in the U.S. market.
Demand next week is forecast to increase to 106.4 Bcf per day next week from 103.7 Bcf per day this week as colder temperatures move into the eastern part of the country.
Technical Analysis
The May 25 natural gas contract closed up for a 2nd day on Wednesday continuing a rally higher following another failed breakout attempt below 10 and 40 day moving average support earlier this week.
The May contract topped out at a 4.203 high on Wednesday holding under weekly high resistance of 4.253 set on Monday before settling the day at 4.138, up .083.
Prices are down today with the May contract again testing 10 and 40 day moving average support at the 3.990 (10 day)-4.020 (40 day) area. The 10 and 40 day moving averages are currently in a bearish alignment.
This support has been temporarily broken two times over the past two weeks with both breakout attempts failing.
A close under 3.990 will turn last week’s 3.689 low for the May contract into the next area of support. Longer term support levels are at 3.380 and 3.000.
Monday’s weekly high at 4.253 remains primary resistance.
Although price breaks continue to be well supported. The spot price is currently trading at the same level it was in late-2024. Bearish divergences and positionings on the trend following indexes suggest a top is in place.
Moving Average Alignment – Neutral-Bearish
Long Term Trend Following Index – Bearish
Short Term Trend Follow Following Index - Bearish
Relative Strength Index - 49.24
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