- The market was expecting an injection of around 98 bcf
- The price of natural gas broke higher, as expected, but the injection may slow the ascent
- The trend in inventories supported a higher price- The level to watch on May 8
On Monday, May 6, the price of June natural gas futures on NYMEX rose to a new high at $2.162 per MMBtu, the highest price for the energy commodity since January on the June and continuous futures contracts. The price rose as the market expected the most substantial increase in inventories since the injection season began in early April.
As of Thursday, May 7, natural gas posted gains in five of the past six weeks. The keep the trend going, the price of the June futures contract would need to settle above $1.882 on Friday, May 8. The Energy Information Administration released its latest data on stockpiles in storage on Thursday, for the week ending on May 1. The inventory report was not particularly bullish for the price of the energy commodity, but if the trend is your friend, natural gas looks poised to test its next level of technical resistance at $2.255, which would be a new high for 2020. The United States Natural Gas Fund (UNG) tracks the price action of the nearby NYMEX futures contract.
The market was expecting an injection of around 98 bcf
According to Estimize, the natural gas market had expected an injection of around 98 billion cubic feet of the energy commodity into storage around the United States.
The chart shows that stockpiles rose by 109 bcf for the week ending on May 1, pushed total inventories to 2.319 trillion cubic feet. The amount of natural gas in storage was 52.3% above last year’s level and 20.5% over the five-year average for this time of the year.
The ten-minute chart shows that the higher than expected increase in stocks briefly pushed the price of natural gas below the $1.90 level to a low of $1.894 before recovering.
While the inventory data was not supportive of the market on a short-term basis, the trend over the past weeks remains higher.
The price of natural gas broke higher, as expected
In early April, June natural gas futures reached a low of $1.649 per MMBtu. From November through the April 2 low, June futures had made lower highs and lower lows, but that trend has reversed. The latest high came on May 5, when the price reached $2.162, the highest level since January 17.
The daily chart highlights that price momentum and relative strength indicators were in neutral territory on May 7 as the price appreciation has been slow and steady over the past month. Daily historical volatility at over 65% is elevated as price ranges have widened. Meanwhile, the total number of open long and short positions at below 1.198 million contracts was below last year’s level at this time when the metric stood at 1.312 million, 114,000 contracts higher than the current level. The decline in open interest reflects the risk-off environment in energy commodities and markets across all asset classes in May 2020 compared to May 2019.
The price of natural gas broke to a higher high over the past week. The trend from the beginning of April continued.
The trend in inventories supported a higher price- The level to watch on May 8
At 52.3%, there is a lot more natural gas in storage facilities around the United States this year, compared to last year at the same time. However, the percentage has been steadily declining since the week of March 20.
Week Ending Stock percentage change (Year on Year)
March 20 79.5%
Mach 27 76.8%
April 3 76.3%
April 10 71.7%
April 17 63.0%
April 24 54.9%
May 1 52.3%
As the chart illustrates, the steady decline in the amount of natural gas stockpiles over the past seven weeks compared to the same time in 2019 could be supporting the price of the energy commodity. The rally is only five weeks old, and the close on Friday, May 8, could supply a clue if it continues.
The weekly chart shows that natural gas posted moved higher over five of the past six weeks. A close over the $1.882 per MMBtu level on the June contract on Friday, May 8, would make the streak six of seven weekly gains.
Natural gas was above the $1.90 level in the aftermath of the EIA data on Thursday, May 7.
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The United States Natural Gas Fund L.P. (UNG) was trading at $13.07 per share on Thursday afternoon, down $0.42 (-3.11%). Year-to-date, UNG has declined -43.95%, versus a 8.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Andrew Hecht
Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More…