Natural Gas Price Fundamental Weekly Forecast – Could Firm This Week as Production Falls, Demand Rises

The tug of war between buyers and sellers over production loss and demand destruction is expected to continue this week although the price action late last week suggests those traders looking for the demand destruction to continue are winning the battle.

Not only were traders conflicted over the influence of production loss and demand destruction, but there was also a notable divergence between cash market and futures prices.

Spot natural gas prices spiked higher last week, driven higher by cooling demand from the West Coast to the Southeast and heating demand in the Midwest and East. Natural Gas Intelligence (NGI) Weekly Spot Gas National Average prices jumped some 20.5 cents higher to $1.750.

Meanwhile, last week, July natural gas settled at $2.077, down $0.057 or -2.67%.

US Energy Information Administration Weekly Storage Report

The EIA on Thursday reported a 109 Bcf storage injection for the week-ending May 1, on the upper end of the estimates. This compares with the 96 Bcf increase in storage recorded by the EIA in the same week last year and the five-year average build of 74 Bcf for that week.

Prior to the release of the report, a Bloomberg survey showed injection estimates ranging from 101 Bcf to 114 Bcf, with a median of 111 Bcf. A Reuters poll of 17 analysts had a wider range that included a low of 95 Bcf and produced a median injection of 106 Bcf. A Wall Street Journal poll’s results also averaged 106 Bcf, while Natural Gas Intelligence (NGI) projected a 109 Bcf build.

Total stocks now stand at 2.319 trillion cubic feet, up 796 billion cubic feet from a year ago, and 395 billion cubic feet above the five-year average, the government said.

U.S. Drillers Cut Oil & Gas Rigs to Historic Low – Baker Hughes

The number of operating oil and natural gas rigs fell to an all-time low – reflecting data going back 80 years – as the energy industry slashes output and spending to deal with the coronavirus-led crash in fuel demand.

The rig count, an early indicator of future output, fell by 34 to a record low of 374 in the week to May 8, according to data on Friday from energy services firm Banker Hughes Co going back to 1940.

Weekly Forecast

Analysts at Raymond James projected the oil and gas rig count would collapse from around 800 at the end of 2019 to about 400 by the middle of the year and 200 at the end of 2020. The investment bank expects an average of just 225 operating rigs in 2021.

Prices could firm this week if more states begin to ease restrictions and lockdowns. As the easing of restrictions go and the number of new coronavirus cases falls, so too will go the natural gas market.

We may not see much movement in the nearby futures contracts, but deferred futures contract traders will certainly react to signs of lower production. While nearby and deferred contract may rally this week, the biggest gains are likely to take place in the further out contracts.