Natural gas came under pressure again on August 28 after failing to hold above the psychologically important $3.00/MMBtu area. Yesterday, the September contract expired at around $2.907, gaining 2.3% after a strong EIA report, but the rally failed to extend.
This is an important technical signal: the market received a fundamentally bullish storage report but was unable to turn it into a sustained breakout above $3.00. Therefore, the current pullback looks like more than just profit-taking and confirms that significant supply remains in the $2.98-3.00 area. As long as the price stays below this zone, the risk of a return toward $2.85-2.80 remains elevated.
Storage data support fundamentals but not price
At the same time, yesterday’s EIA report was indeed strong. Natural gas inventories for the week ended August 21 increased by only 15 Bcf to 3.184 Tcf, compared with expectations for around +21 Bcf and the five-year average of roughly +33 Bcf. The surplus versus the five-year average narrowed from 185 Bcf to 167 Bcf, the lowest level in about two months, while inventories are already 30 Bcf below year-ago levels.
It is especially notable that the South Central region posted a 19 Bcf withdrawal, including a 20 Bcf decline in salt cavern inventories, even though the market is still in the injection season. This confirms strong power demand and LNG feedgas demand, but judging by the price reaction, the market has already partially priced in this factor.
Record production caps bullish potential
The medium-term balance remains supportive, but not clearly bullish. High temperatures across the central and eastern United States continue to support power burn, while the recovery in utilization at Freeport and Corpus Christi is increasing demand from LNG exports. At the same time, supply remains very high, and record production is exactly what is limiting the potential for a sustained move above $3.
The EIA still expects inventories to remain relatively comfortable heading into the heating season, so a more pronounced upward trend would require either a series of weekly injections significantly below normal or a further increase in LNG demand. One strong report alone has already proved insufficient to push the market through $3.00.
$2.80 becomes key downside level
At the moment, downside risks toward support in the $2.85-2.80 area prevail. A break below the latter level would trigger a move toward $2.75-2.70. Rebounds toward $2.96, as I warned in Natural gas holds near monthly highs as storage data take center stage, may be used for selling, while a breakout above this level would allow the market to test $3.00 again.
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