Natural Gas Fundamental Forecast – February 23, 2017

Natural gas futures tumbled early in the session on Wednesday to their lowest level since February 11. However, short-covering due to profit-taking and position-squaring ahead of Thursday’s government storage report helped drive prices higher for the session. Oversold technical conditions also helped boost prices.

April natural gas closed at $2.701, up $0.010 or +0.37%.

The catalyst for the early weakness was a forecast calling for mostly warmer-than-normal weather in key demand areas across the U.S. for the remainder of winter. This essentially means that winter has been declared over.

Current data from the National Oceanographic and Atmospheric Administration (NOAA) shows that demand for heating fuel is nearly 20% below average. This has helped drive prices down 30% from the market’s early winter high.

Forecast

Wednesday’s technical closing price reversal bottom may be an indication that the buying is greater than the selling at current price levels. This could generate a 2 to 3 day counter-trend rally. I don’t think this will lead to a change in the trend to up, but it could help alleviate some of the oversold condition while offering bearish traders an opportunity to refresh their short positions.

On Thursday, the U.S. Energy Information Administration’s storage report is expected to show a draw of about 92 billion cubic feet in the week-ended February 17.

Last week, the EIA report showed a withdrawal of 114 Bcf in the preceding week. In 2016, the EIA report showed a 117 billion draw and the five-year average draw comes in at 158 Bcf.

As of the week-ended February 10, total natural gas in storage stands at 2.445 trillion cubic feet, according to the EIA. This is 12.4% lower than levels at this time a year ago and 3.5% above the five-year average for this time of year.

Traders are predicting that without another blast of cold air within the next month, inventories are likely to finish the winter season at near record levels. Strong exports are likely preventing this number from growing even higher.