Natural Gas Monthly Fundamental Forecast – November 2015

Outlook and Recommendation

Natural Gas experienced a volatile month tumbling to close at 2.304 gaining 47 points on the last trading day. Traders are pushing natural gas to a bottom in between seasons and will wait to see if and when winter kicks in to calculate heating days. Natural gas prices have fallen to their lowest levels in three years, plummeting by more than 10 percent on October 26.

The balance of natural gas supply and demand typically goes through seasonal fluctuations, with inventories building during the summer months in North America as surplus production is diverted into storage. Then in winter months consumers drawdown on natural gas inventories as heating demand spikes.

But natural gas production has reached record heights in the last two years pushing down spot prices to multiyear lows. After consistently trading at or above $3 per million Btu (MMBtu) for much of the last three years, Henry Hub spot prices have dropped below that threshold in 2015 as production continued to climb through much of this year.

Simply put, the US has more gas to work with this year. In regards to production, 2015 has been a very strong year. Despite relatively low prices throughout the year, Platts data shows US production has averaged 72 Bcf/d year-to-date, a 3.6 Bcf/d increase from a year ago. Canadian imports are also up this year, averaging 5.4 Bcf/d this year, a 300 MMcf/d increase from a year ago. Lastly, the US has imported on average 300 MMcf/d of gas from LNG cargoes, primarily during the winter months in the Northeast. In total, the US has averaged a total supply of 77.7 Bcf/d in 2015, a 4.1 Bcf/d increase from a year ago.

As we enter November, this winter is shaping up to be a light one. The latest weather forecasts predict that the eastern half of the US will have above-average temperatures for the next two weeks. This is painful for natural gas prices because the Upper-Midwest and Northeast are some of the largest consumers of natural gas for heating. Cold weather, particularly in densely populated areas, will be absolutely crucial in moving prices out of today’s range.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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