Natural Gas Fundamental Analysis, April 20, 2017

Natural gas futures rebounded from a two-week low on Wednesday, supported by forecasts of cooler temperatures in a few key demand areas.

June Natural Gas futures closed the session at $3.276, up $0.040 or +1.24%.

Over the past couple of weeks, natural gas prices have drifted sideways-to-lower due to lower demand because of the return of mild, spring temperatures. Additionally, traders have been worried about increasing stockpiles.

Forecast

Fundamentally, cooler temperatures in some parts of the country, particularly the northeast, could provide unexpected support this week due to higher demand for this time of year.

Buyers have been coming in to defend the last main bottom at $3.198. These buyers are expecting smaller stockpiles for this time of year. They are betting that this will set the stage for higher prices this summer. According to some reports, the current storage overhang could easily be erased by June if temperatures are warmer than expected.

Thursday’s U.S. Energy Information Administration’s weekly inventories report is expected to show a 49 billion cubic feet build of natural gas. This figure is more than average for this time of year, but about 15% lower than this time a year ago.

Hedge and commodity funds are holding long positions, but unless they are willing to add to these positions at current price levels, prices may stagnate until the news turns bullish. However, just like the price action in crude oil, natural gas prices remain vulnerable to a steep break.

The key to sustaining the rally, in my opinion, is $3.198. If buyers continue to support this level then a base could be built that could trigger a more to higher prices later this spring/early summer.

If $3.198 fails as support then I expect to see heavy fund liquidation. This could drive natural gas prices into $3.120 to $3.048 over the near-term.

According to the latest forecast from natgasweather.com, “Colder weather system will track over the southern and eastern U.S. Friday through Wednesday to bring an increase in demand to stronger levels. Overall, natural gas demand will be low through Thursday, then moderate to high Saturday through Tuesday.