By Barani Krishnan
Investing.com -- Natural gas prices fell Thursday for the first time in six sessions after the U.S. government’s report of a larger-than-expected weekly draw of the fuel from storage failed to impress a market more concerned about an overall supply glut.
The EIA, or Energy Information Administration, reported a draw of 81 bcf, or billion cubic feet, from gas storage during the week ended Feb. 24, higher than the 75 bcf forecast by industry analysts as well as the 71 bcf reported by the agency during the previous week to Feb. 17.
Natural gas futures initially responded well to the draw, with the front-month April contract on the New York Mercantile Exchange’s Henry Hub rising to a five-week high of $2.861 per mmBtu, or metric million British thermal units.
But the gains faded as trading progressed, resulting in a settlement at $2.765. That was down 4.6 cents, or 1.6%, on the day, marking its first decline since Feb. 23.
From a fundamental perspective, the rebound in gas prices from the 2-½ year low of $1.967 on Feb. 23 was supported by a production dip to 97.5 bcf per day from earlier highs of above over 100 bcf daily.
An anticipated rise in U.S. heating demand over the next two weeks due to colder-than-normal weather conditions in early March has been a supportive factor as well.
Another upside for gas bulls has been the improving feed demand for liquefied natural gas with a steady pickup in volumes going into the Freeport LNG terminal in Texas, which has been slowly getting back to normal operations after a fire in June. Freeport had been a rock-solid base of 2 bcf of gas demand a day until it was knocked out.
But intraday price swings will continue occurring due to the distinctly weaker demand for heating during much of the 2022/23 winter, analysts said.
“Natural gas has been trying to get off the floor after flirting with a one-month handle,” markets commentator Adam Button noted in a post on the ForexLive forum. “Forecasts have been trending colder for March but it's too late to save the heating season.”
“It's looking to me like there's too much natural gas in North America and a mess in the pipeline system. In the second half of the decade, it could balance out with more LNG online but given how rapidly gas names upped production, I don't think we're going to be back above $5 sustainably for a while.”
Storage of natural gas stood at a total 2.114 tcf, or trillion cubic feet, as of Feb. 24 — up 27% from the year-ago level of 1.66 tcf and 19% higher than the five-year average of 1.77 tcf.
Chart-wise, the first test for Henry Hub’s benchmark April gas contract would be at $2.95 and eventually $3.30 and above, said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
The current bullish momentum is supposed to continue subject to prices holding above 5-Day EMA, or Exponential Moving Average, of $2.69, said Dixit. He added:
“If this level breaks with selling pressure, expect some downward shift in momentum pushing prices down towards major support of $2.45.”