Key Points
- EIA natural gas inventories rose week-over-week but missed expectations.
- Exxon has signed a major exploration deal with Algeria’s state energy company Sonatrach.
- The technical outlook for NG is bullish. Key levels are 3.000 (resistance) and 2.400 (support).
Market Overview
Sellers have dominated the last two natural gas (NG) sessions. However, despite the bearish price action, NG remains up more than 3% on the week. A test of natural resistance around 3.000 was the technical catalyst driving the 48-hour selloff.
At its core, natural gas is a commodity, with its pricing driven by the supply-demand dynamic. Over the past two sessions, the EIA underground inventory numbers and a major exploration deal have impacted NG supply/demand.
EIA Inventories Rise To Close May
Each Thursday (holidays permitting), the US Energy Information Administration (EIA) Natural Gas Storage report hits newswires. The report measures the weekly change in the levels of NG held in underground storage facilities. It’s measured in billions of cubic feet (Bcf).
Thursday, the EIA storage report came in at 78 Bcf. This figure was beneath expectations of 84 Bcf but well above last week’s 70 Bcf. In the 30 minutes following the EIA release, NG sold off more than 1% on heavy volumes. It appears energy traders viewed the 8 Bcf week-over-week supply increase as a sign that spring seasonality has sprung on the NG market.
Exxon To Explore Algeria?
There has been some interesting breaking news in the natural gas sector over the past 24 hours. It is being reported that Exxon has signed a deal with Algeria’s state energy firm Sonatrach to explore new NG plays. The partnership will “study existing opportunities to develop hydrocarbon resources in the Ahnet and Gourara basins.”
Although the Exxon/Sonatrach partnership is in the fledgling stages, it does suggest that producers are bracing for increased demand in the coming years. Russian embargoes and energy usage from AI data centers are the two NG supply/demand influencers now in vogue. The Exxon/Sonatrach deal shows us that energy’s biggest names are on the prowl for new NG plays in response to a developing bull market.
Technical Outlook
Since the Russian invasion of Ukraine, natural gas has been in a steep downtrend. This trend is now being tested. Over the past three months, NG is up more than 55%. Is the 90-day rally merely a dead-cat-bounce or the beginning of a long-term bull market?
On the weekly chart, the trend is bullish. Accordingly, the 38% Fibonacci Retracement (2.403) should catch significant bids should NG see a significant pullback. This technical zone has a good chance of being tested early next week.
From a macro perspective, it’s difficult to ignore the big-round-number of 3.000. Earlier this week, sellers defended this level with conviction — a retest of 3.000 is highly likely as June’s trade commences.
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