Natural Gas Fundamental Forecast – February 27, 2017

Natural gas futures continued to consolidate on Friday after reaching a multi-month low earlier in the week. Technically, because of oversold conditions, the market may be ready to consolidate, or we may even see a short-covering rally. However, there is nothing in the fundamentals to suggest the trend may be getting ready to turn back to up.

April Natural Gas futures finished the session at $2.787, up 0.380 or +1.38%.

The main catalysts behind last week’s sell-off was warm weather and low demand. Early last week, some meteorologists even declared the end of winter, which really doesn’t officially end on the calendar for three weeks.

Besides the technically oversold technicians and the lack of fresh selling pressure, also helping to stabilize the market late in the week was the U.S. Energy Information Administration’s weekly storage report.

According to the EIA, U.S. natural gas stocks decreased by 89 billion cubic feet for the week-ending February 17. Traders were looking for a draw of about 92 Bcf. Before getting too excited, the number fell inside the estimated range of 86 Bcf to 97 Bcf.

The 92 Bcf draw compares to the five-year average withdrawal of around 158 Bcf. Last year’s storage decline for the week totaled 117 Bcf. During the week-ending February 10, natural gas inventories fell by 114 Bcf.

The EIA also reported that stockpiles are now 10% below their levels of a year ago and have reached 7.1% above the five-year average.

According to the EIA, U.S. working stocks of natural gas totaled about 2.356 trillion cubic feet, around 156 Bcf above the five-year average of 2.200 Tcf and 261 Bcf below last year’s total for the same period. Working gas in storage totaled 2.617 Tcf for the same period a year ago.

Forecast

According to data from NYMEX and ICE, speculators cut their net long positions for a fifth week in a row on forecasts that the weather will remain warmer than normal the rest of the winter. This represented the longest decline in net longs since April 2015.

The data showed that speculators reduced their bullish bets by 41,891 contracts to 256,808 in the week to February 21, the U.S. Commodity Futures Trading Commission said on Friday.

The five-year (2012-16) average speculative net long position for this time of year is around 127,300. Compared to the current number, the data suggests that further liquidation is possible. However, it also means that investors should start paying closer attention to the current stockpiles which are 10% below their levels of a year ago and 7.1% above the five-year average.

If these numbers continue to decline then natural gas could find support. If the numbers increase then we could see another round of selling pressure.