Natural Gas Price Fundamental Daily Forecast – Bulls Believe Deficit Will Extend into Heating Season

Natural gas futures are trading lower early Wednesday after taking out last week’s high yesterday and attempting a weak run at previous tops at $2.995 and $3.025. Supply concerns were the catalyst behind the spike to the upside despite reports of record production.

At 0842 GMT, October Natural Gas futures are trading $2.955, down $0.011 or -0.37%.

Weather Outlook

According to the National Weather Service, the most recent six- to 10-day temperature forecast calls for lower-than-average temperatures for much of Texas, Midcontinent, and Upper Midwest. The lower-than-average temperatures in these regions are expected to last for the next two weeks.

NatGasWeather.com for the period August 15 to August 21, says “A weather system with showers and comfortable highs of 70s and 80s to North Texas, Southern Plains and the east-central U.S. the next few days. The West remains hot with highs of 90s to 100s. The Southeast is also hot with highs of 90s. Late in the week, high pressure will strengthen over much of the country, including highs of 90s returning to major Northeast cities for strong demand. However, additional weather systems are expected into the central and then east-central U.S. this weekend into early next week with showers and cooling. Overall demand will be moderate to high.”

Production

The analysts at S&P Global Platts Analytics said on Tuesday that U.S. dry gas production fell 1.4 Bcf/d on the day to 80.7 Bcf/d Monday, as most of the fall comes from the Northeast and Rockies, falling 600 MMcf/d, respectively.

Dry gas production has averaged 81.1 Bcf/d thus far in August, which is 8.2 Bcf/d higher than this time last year.

Forecast

Tuesday’s rally came as a surprise, but in hindsight it probably means traders are concerned about the storage deficit extending beyond October.

Energy Aspects is saying that based on weekly balances it estimates total August injections of around 225 Bcf, coming on the heels of total injections of less than 200 Bcf for July.

“August balances show no sign of injection rates materially accelerating, so it seems increasingly likely that the market will enter the heating season with a historically low carryout for the shale era.” This would likely underpin prices.

As for Thursday’s U.S. Energy Information Administration’s storage report, early guesses are coming in at between 17 Bcf and 42 Bcf with the consensus calling for a 29 Bcf build for the week-ending August 10, well below the five-year average of a 56 Bcf increase for the same week.

Technically, a trade through $2.979 will indicate the buying is getting stronger. If this creates enough upside momentum then we could see a test of $2.995 to $3.025. A shift in the weather to warmer temperatures or a bullish EIA report will likely be the catalyst behind this move.

The trend will change to down on a move through $2.905. This could trigger a further break into $2.865 to $2.838.

This bullish tone is not likely to go away until injections start to meet or exceed the five-year average, which means it could last all month since there are only two more August reports left after Thursday.