Natural gas rebounds from key support ahead of stocks report

Commodities 3 minutes to read

Ole Hansen

Head of Commodity Strategy

Summary: Following another winter of volatile price action, natural gas has returned to, and is once again trying to establish support ahead of, the key $2.5/MMBtu level. Here are some potential catalysts for a rise in prices.

Following another winter of volatile price action natural gas has returned to, and is once again trying to establish support ahead of, the key $2.5/MMBtu level. The high volatility witnessed this winter will begin to ease as we enter the more predictable spring period. This also means that we will soon be entering the annual injection into storage season when supply once again exceeds demand.

However, we still have a few weeks left before that happens and the late February/early March weather can still spring a few surprises. Please note that throughout these past few winter months, natural gas has often spiked higher or lower on Mondays when short-term weather forecasts were being updated over the weekend.

Natural gas production, demand and (LNG) exports are all hovering at or near record highs. In order for gas to recover, we need to see one or more of the following:

1) Colder than normal late winter/early spring weather driving stronger than expected demand.
2) Slowing production growth, especially as a byproduct from shale oil production (possible but unlikely to provide any immediate support).
3) Increased LNG exports (unlikely in the short-term due to an overhang of supply and low prices in both Europe and Asia following a milder than normal winter).

Natural gas (NGH9) is trading higher by 1.25% today ahead of the weekly inventory report from the US Energy Information Administration at 15:30 GMT. A Bloomberg survey points to a weekly stockpile draw of 165 billion cubic feet (bcf), well above last week’s draw of just 78 bcf and also higher than the five-year average of 148 bcf.

According to the US National Oceanic and Atmospheric Administration, the short-term weather outlook points to colder than normal temperatures through to March 26.

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