Natural gas tests $3.00 as storage comfort limits upside
Natural Gas is trading around $3.04/MMBtu on October 2 and has lost much of its upward momentum after September’s surge toward $3.40. On the hourly chart, the price is trading below its fast and medium-term moving averages, while the sequence of local highs is gradually shifting lower.
Quotes are now once again testing the $3.00–3.05 area, which acted as an important consolidation zone even before the latest move higher.
Storage outlook keeps supply concerns contained
The latest storage data do not suggest any shortage of supply, as U.S. natural gas inventories increased by 64 Bcf to 3.415 Tcf in the week ending September 25. Although they remain below last year’s level, they are already about 2.4% above the five-year average. EIA still expects inventories to reach around 3.969 Tcf by the end of October, roughly 5% above the five-year norm.
For the market, this is an important factor, as fairly comfortable storage levels limit the upside potential without an additional catalyst from weather or exports. The LNG sector also continues to support Natural Gas. Gas flows to U.S. export terminals remain high and held at around 17.9 Bcf/d in September, compared with 17.2 Bcf/d in August.
LNG demand remains strong, but production offsets support
Nevertheless, strong export demand is still being offset by high production and seasonally moderate domestic consumption. In autumn, the market is particularly sensitive to weather factors: cooling demand is already declining, while sustained heating demand has not yet emerged. Therefore, any warmer forecasts quickly increase expectations for larger injections into storage.
The Middle East also remains a risk factor. LNG shipments through the Strait of Hormuz have partially recovered recently, reducing concerns about a physical gas shortage in the global market. Nevertheless, renewed escalation around Iran or disruptions to shipping could quickly push European and Asian gas prices higher and, in turn, increase the attractiveness of U.S. LNG.
$3.00 becomes key short-term support
Remaining under selling pressure, NATGAS is trading close to $3.00, and this level could well be tested in the short term. Bulls need to hold this area, in which case a rebound toward $3.10–3.15 should be expected at a minimum. A break below this support, as I warned in the article Natural Gas tests key support as September rally fades, would open the way toward $2.95–2.90, where buying interest could also emerge.
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