Natural Gas Sinks to $2.642; EIA Build Seen Extending Slide

The West and South are hot. That does not move this trade. Natural gas needs sustained heat across the Midwest and Northeast, where population density and air-conditioning load can lift power burn fast enough to shift storage math. Recent forecasts turned cooler across both regions and the market reacted immediately. Cash prices weakened across Texas and the Gulf Coast earlier this week, with parts of the Midwest also seeing softer physical deals. The spot market is confirming what the forecast shows: daily demand is not tight enough to challenge the futures selloff. A hot revision across the East can still produce a sharp short-covering move. The current forecast does not support it.

Feedgas near 18 Bcf per day is the strongest support buyers hold. European storage at 58% full heading into winter is well below normal for early August, and global buyers want U.S. cargoes. Cheniere raised its full-year outlook Thursday on strong export demand. July exports slipped to 10.48 million metric tons from 10.6 million in June, even with overseas prices calling for more supply. Summer maintenance at Freeport LNG and other facilities limited how much gas could leave the country. Feedgas has improved. It still runs below the spring peak and is not pulling enough out of the domestic system to offset incoming supply.

The Hugh Brinson pipeline reaches full capacity at 1.5 Bcf per day by September 1, sending more Permian gas straight to Henry Hub while summer demand fades. LNG demand has to compete with existing production and rising pipeline capacity. Storage that is already above average adds to the pressure. The export story turns bullish when plants come back from maintenance and start pulling harder. The market is not pricing that until it shows up in daily nominations.

The technical picture reaffirmed the downtrend Thursday when sellers took out Tuesday's low at $2.659. The next support is long-term $2.592. A recovery above $2.676 would signal the market is nearing a value area on the technical read. The buying is likely to be short-covering and some bottom-picking. The trend changes up only if the swing top at $2.810 falls, and reaching the 50-day moving average at $3.028 requires taking out a second swing top at $2.979.

The contract carried a large short position into the week, per our earlier coverage. See Natural Gas: 207K Shorts Face Heat Test as Front-Month Holds Support. Thursday's EIA number is the immediate catalyst. A build near the 31 Bcf estimate does not help buyers when storage runs 6.4% above the five-year average. Sellers carry production near 111 Bcf and new Permian pipeline capacity arriving next month. Weather keeps missing the population centers that drive summer demand. Buyers have to prove something changed in the balance before the market treats any bounce as more than short covering. The downtrend was reaffirmed on a new multi-month low, and the 50-day moving average at $3.028 sits a long way overhead.