Natural gas futures for April ’15 delivery rose 6.5 cents on Wednesday to $2.92 per mmBtu, its second day of significant gains.
Traders and investors of natural gas are weighing a variety of factors for the commodity, and as a result, many are asking… can natural gas go higher?
Let’s investigate the variables to determine if the rally for natural gas can indeed continue.
The $2.92 is a key resistance level for natural gas. As shown in the chart below, the commodity has touched this level multiple times since the beginning of 2015 only to fail to break this resistance level. In the times that it has broken this level, it has failed to fully breakout on an extended run.
As a result, $2.92 is a key resistance level for natural gas. From a technical perspective only, traders and investors can expect profit-taking as well as shorting of the commodity at the $2.92 level based on the price action multiple times at this level in 2015.
In turn, a pull back to $2.79, another support/resistance level is very likely.
Thursday’s Weekly Gas Storage Report
The U.S. Energy Information Administration (EIA) is set to release its Weekly Gas Storage Report on Thursday at 10:30 am EST. Analysts are expecting a withdrawal of -47 Bcf.
Last year’s withdrawal for the same reporting week was -48 Bcf, and the five year average for the reporting week is -65 Bcf. If analysts’ estimates are in line with the reported withdrawal from the EIA, the current deficit in comparison to the five year average is likely to be narrowed. The current deficit is at -225 Bcf, so the narrowing deficit will be insignificant.
Current storage levels are at 1,512 Bcf, so this week’s withdrawal will take storage levels likely in the range of 1,460 Bcf. As a result, this figure would represent the fourth lowest storage figure in the past ten years.
To summarize, there are positive elements that should support natural gas in the broader picture. However, as with any Thursday, the short-term price action will likely be in direct response to whether or not the reported withdrawal from the EIA beats analysts’ estimates.
The recent two-day rally has been on the back of colder weather forecasts for late-March and early April.
Temperatures in Boston on March 22 are forecasted to be 18 degrees Fahrenheit, 15 degrees below normal. In New York, the low on the same date is expected to be 28 degrees Fahrenheit, 9 degrees below normal.
The colder weather could create storage withdrawals that would be well below five year average levels. For the reporting week ending March 27, the five year average is only -18 Bcf, and for the reporting week ending April 3, the five year average is only -12 Bcf.
“These last two weeks of the traditional withdrawal season could have a lot of punch,” said Steve Kingston, a reporter for NatGasInvestor.com. “An injection is possible for the week ending March 20, but if these last two weeks report significant withdrawals on the back of a spring cold snap, we could easily finish the withdrawal season at 1,425 Bcf.”
On March 10, the EIA predicted that end of March storage levels will be 1,587 Bcf. This prediction was made before recent strengthening of forecast models showing cold in late March and early April.
To conclude, if the rally for natural for natural gas is to continue Thursday, forecast models must show continued cold. Any reduction in forecasted heating degree days (HDDs) will only make the $2.92 resistance mentioned above that much tougher to penetrate.
Natural gas is once again at a crucial pivot point, and as is often the case, it arrives on a Thursday, its traditionally most volatile day of the week with the release of the Weekly Gas Storage Report from the EIA.
A failure today of natural gas to break $2.92 will likely see a retest of $2.79 or $2.68. At the same time, a breakout above $2.92 today with a confirmation candle on Friday could indicate higher price levels for the commodity, especially on the back of colder weather forecasts in late March and early April.
Natural gas traders and investors will also be quickly looking to next week’s gas storage report which is likely to show an injection.
Combined, these factors, as always, will make for an interesting Thursday.
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This commentary is an opinion piece by the author based on his own analysis. It is not a recommendation to buy or sell any commodity. Read our full disclaimer here.