Key Support for Natural Gas Now at $2.75
Natural gas prices dropped once more on Thursday to continue a downward trend even with higher than normal export sales.
Quick overview
- U.S. natural gas futures dropped 1.5% to $2.82/MMBtu due to smaller-than-normal withdrawals reported by the EIA.
- Total U.S. natural gas inventories are at 2.018 trillion cubic feet, approximately 0.3% below the five-year average.
- Warm weather is expected to further decrease demand for natural gas exports, contributing to a bearish market trend.
- Current projections suggest that if LNG prices fall below $2.75, they may drop to around $2.50 soon.
Dropping 1.5% on Thursday, U.S. natural gas futures fell to $2.82/MMBtu on the news that the withdrawals this week were smaller than normal.
The Energy Information Administration (EIA) reported withdrawals, and the low numbers prompted a further decline by LNG futures. Total inventories are now at 2.018 trillion cubic feet for the U.S., which means that the current level is around 0.3% below the five-year average.
Gas prices continue to drop as warm weather spreads, and that situation is not likely to change very much over the coming weeks. Minor reports of strong exports or heavy withdrawals could help bring the price back up close to $3, but gas is expected to find support around $275 right now.
Where Gas Futures Are Headed
If LNG prices for the United States fall below $2.75, the next support level will be at $2.50, and it is safe to say the market should see prices around there very soon. Last week, utilities withdrew 52 billion cubic feet, which is very little compared to 252 billion bcf the previous year. It is also well below the five-year withdrawal average of 168 bcf.
Exports are still high for now, with 18.7 bcfd reported for that arm of the LNG market, but all industry projections point toward declining export sales as well in the coming weeks. The export market is a growing one for the United States and one that has done tremendously well over the last decade, with eight export terminals now in operation.
Warming temperatures are sure to drive down demand for exported natural gas over the next few weeks, which means that export levels will not significantly contribute to the price for LNG for a while.
The EMA charts show mostly bearish buying and selling trends that do not indicate sustained rallies. In fact, when the price rallies, investors appear to be taking the opportunity to sell quickly, which causes the price to drop once more. The daily chart shows a sustained, simple downtrend we do not expect to suffer significant disruptions for now.
Headline news with tensions rising in Iran and a confident State of the Union address are not enough to move the current trends in the other direction. Outflows and export numbers are not making much of an impact either, and the current selling trend should continue unabated as temperatures rise and demand falls away. There is no indication that the market has exhausted its downward pressure.
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