Natural Gas Fundamental Forecast – February 17, 2017

U.S. April Natural Gas prices plunged to their lowest level since November 18 after sellers took out the psychological $3.000 level decisively. The move also filled in a price gap left on the chart when the market made a jump from Friday’s close to Monday’s opening on November 18 to November 21.

The catalyst behind Thursday’s selling pressure was a government report that showed less weekly demand than forecast the previous week.

According to the U.S. Energy Information Administration (EIA), U.S. natural gas stocks decreased by 114 billion cubic feet for the week-ending February 10. Analysts were forecasting a storage decline of around 124 billion cubic feet.

That number compares to the five-year average for the week of a withdrawal of around 156 billion cubic feet. Last year, natural gas in storage declined by 163 billion cubic feet and the week-ending February 3 by 152 billion cubic feet.

The EIA also reported that stockpiles are now about 11 percent below their levels of a year ago, and have reached 3.7 percent above the five-year average.

Additionally, the government reported that U.S. working stocks of natural gas totaled about 2.445 trillion cubic feet. This figure is around 87 billion cubic feet above the five-year average of 2.358 trillion cubic feet and 303 billion cubic feet below last year’s total for the same period. Working gas in storage totaled 2.748 trillion cubic feet for the same period a year ago.

Forecast

Although technically oversold conditions could produce periodic short-covering rallies, prices could continue to fall into the end of the month as demand for natural gas is expected to be low over the course of the next two weeks.

National weather forecasts show that most of the country will be blanketed by warmer weather, leading to lower demand. Overall temperatures in the United States should be about 15 to 30 degrees warmer than normal.

The key numbers in the report to watch over the next few weeks will be stockpiles compared to levels a year ago and the five-year average. Longer-term investors would like to get this number as low as possible ahead of the start of spring, a time when production tends to rise and demand falls considerably.