Natural Gas Futures Fall on Possible Bearish Shift in Weekend Weather Forecasts

Takeaways

• Forecast for cooler-than-normal pattern in April may have shifted to less-cooler
• US natural gas storage drops, but surplus remains high despite cold weather
• Short-term outlook for natural gas remains uncertain due to fluctuating weather forecasts and surplus supplies
• Gains are likely to be capped due to surplus supplies, $2.00 level expected to prevent steep plunge

Overview

Natural gas futures are drifting lower early Monday, indicating the weekend weather forecasts may have been disappointing for the bulls.

At 09:35 GMT, May natural gas futures are trading $2.260, down $0.101 or -4.28%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $7.33, up $0.15 or +2.09%.

The market saw a 3% increase on Friday after dropping to a one-month low earlier in the week due to forecasts confirming colder than average temperatures for the next two weeks. This meant that heading demand would remain higher than usual through early April.

However, the current weakness may be a signal that weather trackers have discovered negative aspects in the previous forecasts.

Ahead of Weekend, Forecasts were Leaning toward Cooler-than-Normal April Weather

NatGasWeather said weather data, while inconsistent through most of the past week, flipped back colder heading into trading Friday. The European weather model added several heating degree days for the next two weeks.

This, the firm said, advertised a cooler-than-normal pattern heading into April and provided a bump for futures. That noted, price movement was modest as cool temperatures in late March and early April rarely translate into robust demand. At the same time, high temperatures across the South are projected to range from the 60s to the 80s – shoulder season conditions that tend to minimize both heating and cooling demand.

However, Monday’s early price action suggests the forecast may have shifted to less-cooler over the weekend.

US Natural Gas Storage Drops, but Surplus Remains High Despite Cold Weather

The US Energy Information Administration (EIA) reported a withdrawal of 72 Bcf natural gas from storage for the week ending March 17. Inventories dropped to 1,900 Bcf, down from last year but still higher than the five-year average.

A cold weather system in the previous week is expected to lead to another significant withdrawal in the upcoming week. However, the market’s elevated supplies due to a mild winter and steady production around 100 Bcf/d means that even late-season bullish prints will not do much to reduce surplus supplies.

Short-Term Outlook

The short-term forecast for natural gas is uncertain. The weekend weather forecasts may have been disappointing for the bulls, leading to a 4.28% drop in May natural gas futures. While the previous forecasts suggested a cooler-than-normal pattern heading into April, Monday’s early price action indicates a possible shift to less-cooler weather.

Although a cold weather system in the previous week is expected to lead to another significant withdrawal in the upcoming week, the market’s elevated supplies due to a mild winter and steady production around 100 Bcf/d mean that even late-season bullish prints will not do much to reduce surplus supplies. Overall, the short-term outlook for natural gas remains uncertain due to fluctuating weather forecasts and surplus supplies.

Technically speaking, gains are likely to be capped due to the surplus supplies, while the psychological $2.00 level is likely to underpin prices, preventing a steep plunge.