Natural Gas Price Fundamental Daily Forecast – Concerns Over Storage Deficit Underpinning Prices

Natural gas prices are trading lower early Wednesday after spiking to the upside the previous session. The move was fueled by concerns over storage deficits.

At 0912 GMT, June Natural Gas futures are trading $2.785, down $0.017 or -0.61%.

The volatile price action we’ve been experiencing is being generated by bullish traders who are banking on the combination of the storage deficit and the belated start to the injection season to underpin prices and create some upside momentum.

Bearish traders believe that rising U.S. production should be enough to close the gap on the deficit perhaps before the start of the summer cooling season.

At this time, the struggle suggests prices should be capped by the March high at $2.873 and supported by the series of bottoms ranging from $2.660 to $2.638. The middle of this range is $2.76.

Forecast

Although the market is down early Wednesday, there seems to be an upside bias this week. Late last week and early this week, sellers believed that the expected build in Thursday’s U.S. Energy Information Administration’s weekly storage report would be bearish for prices.

However, estimates have been lowered since the initial forecast was issued. This was probably behind Tuesday’s rally. As of Wednesday morning, one consensus estimate is 47 billion. The range is the upper 40s to the low 50s.

Early Tuesday, one respected analyst called for a build of 57 billion. However, based on the price action, it looks as if this estimate may be too high.

We expect to continue to see volatile two-sided trading until the EIA report is released at 1430 GMT on Thursday. Even after it is released, prices could spike in either direction depending on how bad the miss is to either side.

We’ve said for several week’s that this is going to be an unusual year because of the huge demand in April. The longer-term direction will be determined by how fast production is closing the deficit. There are forecasts floating out there that suggest storage builds in the 90 – 100 range in the weeks ahead. This looks bearish, but the downside could be limited if these builds only meet the five-year average.

Basically, we’re looking at a volatile two-sided trade over the near-term with a slight bias to the upside. This forecast will only work if temperatures hold steady. If summer comes early then look out to the upside.