Natural Gas Prices Fall On Large Supply Increase

On Thursday, natural gas prices fell lower as there was a large supply increase. The forecast from the EIA is painting a bearish picture. The upcoming summer season is having a large impact on demand. The price of natural gas fell by 1% to $3.196 per million British thermal units — MMBtu.

Storage Increase

The main reason for natural gas prices falling would have been the larger than expected storage increase. The Energy Information Administration — EIA — revealed that stockpiles increased by 67 billion cubic feet for the week ending April 28. There are two big problems with the reported data.

First off, the newly reported number was higher than what analysts were expecting. Analysts were only expecting a build of 61 billion cubic feet. The second issue is that there was a build in stockpiles. A build will definitely not help drive natural gas prices higher. With that in mind, the total natural gas stockpiles stands at 2.256 trillion cubic feet.

There is a positive and negative aspect to the total storage data. The good news is that the total amount of natural gas stockpiles is down at least 359 billion cubic from last year. The bad news is that it is still above the five-year average by 303 billion cubic feet.

EIA Forecast

In the most recent short-term outlook report, the EIA forecast that natural gas would be responsible for upto 34% total electricity use this summer. That may seem like a lot but in reality it is not. That is because last year natural gas use for the summer stood at 37%. That is a drop of 3% year over year. With demand dropping like that, it does not bode well for prices.

Weather Forecast

A large reason for falling natural gas demand during the summer is mild temperatures starting to take shape. Mild temperatures is what was responsible for demand dropping off the last few weeks.

The warmer weather brought about a huge reduction in demand. Such an event increases the amount of stockpiles and in turn lowers prices. The warm spell is likely to last over the next few months, which means that demand will remain low for the time being. The only way for demand to pick up would be for some cooler temperatures to come into play throughout the summer months.

For example, residential and commercial demand was higher compared to the previous week. It increased by2.2 bcf/day as the majority of the country started to cool off. This happens because natural gas demand improves when there is cooler weather.

Trading Natural Gas

With natural gas prices reaching $3.196 that means they have gone at least 26.2% higher than their 2017 low. The low of 2017 was at $2.56 per MMBtu. The highest close over the last few days was at $3.28 which was breached last Friday.

The 52-week range for natural gas remains between a low of $2.72 to a high of $3.62. The problem is that it will be highly difficult for natural gas prices to reach up to $3.62 over the next few months, even with the current price standing at $3.196. That is because the warmer summer months will keep demand at bay.

What Binary Options Traders Should Watch For

There are a few things that traders should watch for.

The first of which is the recent storage data. With storage data coming in higher than expectations it caused natural gas prices to drop lower. What must be watched is the next storage report, which is set to come out this coming Thursday. If the amount of storage can come in below expectations, it will show that demand has picked up.

The second item would be the EIA forecast. That is because it is just a forecast, therefore it can slightly change. It is highly dependent upon how the weather patterns play out through the rest of the summer months.

The final item that traders should keep an eye on would be the weather forecast. Depending upon how warm it gets during the summer, it could cause natural gas prices to plummet. The weather would have to get cooler or a little bit mild in order for demand to increase.