Natural gas prices were trading higher prior to the release of today’s weekly inventory report, and the upmove accelerated once the report hit the wires. The contract for January delivery on the New York Mercantile Exchange reached as high as $3.524 and closed the day at $3.505, up 4.56%.
The Energy Information Administration reported natural gas inventory showed a draw of -50 Bcf versus expectations for inventory to be a draw of approximately 53 Bcf. This represents the second weekly draw in a row for EIA inventory. Working gas in storage was 3,995 Bcf as of Friday, November 25, according to EIA estimates. Stocks were 24 Bcf higher than last year at this time and 235 Bcf above the 5-year average of 3,760 Bcf. At 3,995Bcf, total working gas is above the five-year historical average.
Natural gas prices have moved sharply higher since bottoming in November. The January contract rose more than 7% in last week’s trading and is up another 9.5% this week.
With Wednesday’s move to the upside, natural gas prices confirmed a break above the 61.8% retracement level of the decline from the mid October high through the November low. The break above this retracement level increases the probabilities of a complete retracement of the decline with a move to the October peak at $3.674, which represents the next level of potential resistance.
While the ability to extend the advance in the presence of what is an extreme overbought condition is a sign of underlying strength, given the extent of the recent gains, the potential for a period of correction or at least consolidation is increasing.
Should natural gas prices come under pressure over the near term, first support is near the midpoint of today’s price action, near the $3.426 level. Second support is at the gap created with Monday’s strong open, from the $3.251 to the $3.223 level. Holding above this zone on a move to the downside would keep natural gas prices well-positioned to resume the upmove toward the October high.
January 2017 Natural Gas Futures Daily Chart