Natural Gas Price Fundamental Daily Forecast – Bearish EIA Report, Rising Production Could Limit Gains

Natural gas buyers are right back at it early Friday, following yesterday’s sell-off. However, unless the buying is strong enough to take out this week’s high at $3.261, the market could be in a position for a dramatic sell-off.

Traders said the selling was fueled by approved in-service of a major natural gas pipeline and a bearish government storage report. Spot gas prices were also under pressure as milder weather was preparing to move into key demand areas.

At 0851 GMT, November Natural Gas futures settled at $3.207, up $0.042 or +1.33%.

The first piece of bearish news came into the market when the weather forecasts showed a minor setback in gas-weighted degree days.

This was followed by the news that FERC had put back into service the Atlantic Sunrise pipeline.

Finally, the U.S. Energy Information Administration (EIA) released a bearish weekly storage report.

Weather Outlook

The latest American model shows a cooling trend across the central and northern United States during October 11 to October 18. Until then, the southern and eastern part of the country is expected to remain warmer than normal through next week.

The big concern for traders today and over the week-end is just how much colder-than-normal air will spread out of the Plains and across the Great Lakes and Northeast October 13 to October 17.

EIA Report

The EIA reported a 98 Bcf storage build for the week-ending September 28. This came within the estimates, but was as much as 20 Bcf above some forecasts.

With the 98 Bcf build, inventories grew to 2866 Bcf, 636 Bcf below year-ago levels and 607 Bcf below the five-year average. Broken down by region, the EIA reported a 36 Bcf injection in the Midwest, a 34 Bcf build in the East and a 22 build in the South Central.

Forecast

Prices could be under pressure today if spot gas prices continue to fall and production continues to rise. It looks as if the rally could stall because with the pipeline reopened, supply could start flowing again. The only major variable is the weather. And with a mostly comfortable October pattern settling in, demand is expected to be light to moderate.

I would really be surprised by another surge through $3.261. However, taking out this level then closing lower will indicate the selling is greater than the buying at current price levels.

If the market goes through a normal correction then look for a pullback into $3.112 to $3.077. A second correction could drive prices into $3.004 to $2.943.

With the longer-term fundamentals bullish, I expect to see buyers show up on breaks into these zones. We may not necessarily see a new high over the near-term, but this will certainly slow down the selling pressure, preventing the near-term trend from changing to down.