Natural Gas News: Capitulation Risk Grows Today with Weather, Inventory Still Bearish

Natural gas futures in the U.S. are struggling to maintain their value after a significant drop last week. After hitting a low of $3.993, the January contract is currently trading just above $4.00. This slight recovery follows a $1/MMBtu decline that erased nearly a month's worth of gains, with the January contracts now nearing a support zone between $3.91 and $4.05. Traders are closely monitoring weather patterns and any signals of market capitulation.

At 16:21 GMT, January Natural Gas Futures are trading at $4.046, a decrease of $0.067 or -1.63%.

Buyers Beware: A Bearish Bounce?

The modest recovery observed on Monday lacks strength. The 200-day moving average, near $4.48, presents resistance, with even stronger resistance around the 50-day moving average at $4.71. While some buyers are attempting to find a bottom, it appears to be more of an effort to average down rather than a genuine shift in market sentiment. A persistent excess of weak long positions is weighing on the market. Until these positions are cleared, rallies may simply provide better opportunities for sellers.

Factors Pressuring Natural Gas Prices

Several fundamental factors continue to exert downward pressure on prices. U.S. dry gas production reached a record high of 109.7 Bcf/d in December. Storage levels are also elevated, sitting 1.3% above the five-year average. Simultaneously, demand remains weak, with forecasts indicating one of the warmest late-December periods in recent decades. This combination of factors sustains a bearish outlook, keeping bullish investors at bay. Although futures are technically oversold, this condition has not halted the price decline.

Regional Price Disparities Highlight Oversupply

Price differences among U.S. gas hubs are becoming more pronounced. While the Henry Hub is maintaining prices near futures levels, the Waha Hub in Texas has experienced negative prices due to pipeline bottlenecks. This issue indicates a significant structural oversupply problem that extends beyond the local area. Conversely, prices in New England are high, revealing how infrastructure limitations continue to disrupt regional gas flows.

LNG Exports Offer Limited Support

Despite robust LNG export volumes, they are not significantly impacting prices. Dutch TTF is near a 19-month low, and Asia's JKM is hovering around $11/MMBtu, both bearish indicators. This global weakness diminishes the positive effect of U.S. export strength. So where does that leave things? without increased overseas demand or a reduction in domestic supply, LNG exports are unlikely to provide the support that bulls are hoping for.

Short-Term Outlook: Bearish Until Capitulation Occurs

Currently, prices are attempting to establish a base near the $4.00 level, but there is no clear bullish catalyst. Unless a sudden cold snap or a slowdown in production occurs, prices are likely to continue declining. Market capitulation, rather than mere consolidation, may be necessary to reset market positioning. Until then, any upward movement should be viewed with skepticism.

More information is available on our Economic Calendar.