Natural Gas Fundamental Analysis – for the week of August 22, 2016 -Forecast

Natural Gas is moving into the autumn season where demand is at its lowest point. NG is trading at 2.583 trading virtually flat for the week. Summer demand days are counting down quickly. But the market remains oversupplied, with inventories 14% above the five-year average for this time of year. Analysts expect stockpiles to hit a record high ahead of the winter, when demand for natural gas is typically strongest.

Natural gas stocks exhibit strong seasonal behavior, increasing between April and October, then drawing down during winter between November and March. But working gas stocks increased by just 22 billion cubic feet (bcf) last week, which was less than half the average increase of 55 bcf at the same time of year between 2011 and 2015.

Stocks have increased by less than normal in 17 of the last 20 weeks. Inventories have risen by just 859 bcf since the start of April compared with a typical increase of 1,328 bcf in the last five years. Part of the reason is that surging temperatures have spurred record demand for air conditioning and forced power producers to burn more gas to meet demand.

Temperatures have been consistently higher than normal in June, July and August across most of the United States. Total air-conditioning demand so far in 2016 has been 4 percent higher than in 2015 and 12 percent above the long-term average.

However, even allowing for higher temperatures, natural gas consumption by power producers has been exceptionally strong, while natural gas production has lagged.

Aug 22 – Aug 25: It remains warm over the East Coast where highs into the upper 80s and lower 90s again expected into major cities, while also warming across the Great Lakes the next few days as high pressure briefly builds in. It’s hot over the West with upper 80s to 100s, apart from the coast. Most importantly, an early season cool blast with showers and thunderstorms is currently advancing into the northern Rockies and Plains, dropping temperatures into the 60s and 70s behind the cool front, which is several degrees below normal. Next week will remain slightly cool over the central US, but very warm to hot over the West and East Coasts, especially late in the week. Overall, nat gas demand will be MODERATE the next 7-days.

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