The May natural gas futures contract goes off the board on Wednesday so be prepared for another volatile session.
Natural gas futures are trading nearly flat, but remain within striking distance of its March 3 top at $2.958. This level is another potential trigger point for an acceleration to the upside.
The rally this week is being driven by expectations of a decline in U.S. production due to regularly scheduled pipeline maintenance. The upside volatility is so strong that investors are shrugging off a slight pullback in exports and favorable weather forecasts calling for moderate early May temperatures.
At 08:08 GMT, June natural gas futures are trading $2.943, up $0.001 or +0.03%.
Bullish Traders Focused on Pipeline Maintenance
Pipeline maintenance led to a huge day/day decrease in production on Tuesday. According to Natural Gas Intelligence (NGI), a slew of pipeline maintenance events in the Northeast resulted in a 2.4 Bcf day/day drop in production. Meanwhile, Wood Mackenzie, a natural resources research and consulting firm, said unannounced operator field maintenance also likely contributed to the decline in output.
“Northeast Pennsylvania flows are down by 0.6 Bcf/d day/day,” according to Wood Mackenzie analyst Nicole McMurrer. There is planned maintenance on Millennium Pipeline at the Highland Compressor Station on the WAGONRW segment that is impacting close to 50 MMcf/d of production, the analyst said. However, “the majority of the decline is appearing on the same points where we saw large field outages last week” along Tennessee Gas Pipeline and on Transcontinental Gas Pipe Line.
“This looks like field maintenance to our team, as fluctuations in receipts follow a similar pattern across the group of points that are located close together geographically,” McMurrer added. “Of course, this region in particular typically sees high daily revisions, so we will be able to tell with more certainty” what is occurring on Wednesday.
NGI added that a one-day maintenance event Tuesday on Nexus Gas Transmission cut production in Ohio. In addition, ongoing work on Rockies Express Pipeline was limiting nominations through segment 380 in the southeastern part of the state.
Technically, the direction of the June natural gas market on Wednesday will be determined by trader reaction to the March 3 main top at $2.958. Taking out this level could create the upside momentum needed to challenge the psychological $3.000 level. A failure to take out $2.958, or a sustained move under $2.942 could trigger a break into $2.868.
Fundamentally, the pipeline maintenance is a short-term event that seems to have caught short-sellers off-guard. It is not the type of event that encourages traders to chase the market higher. Furthermore, the maintenance could be over in a few days.
On the bearish side, liquefied natural gas (LNG) feed gas volumes dipped slightly day/day. NGI data showed that flows to U.S. LNG export terminals slipped to around 11.47 Bcf on Tuesday, down from around 11.54 Bcf on Monday. Furthermore, the weather patterns are still bearish. This could encourage profit-taking.
Finally, the May natural gas futures contract goes off the board on Wednesday so be prepared for another volatile session.
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