Natural Gas Price Fundamental Daily Forecast – Current Deficit Will Continue to Tighten after EIA Report

Natural gas futures are trading higher for a third session early Thursday as traders continue to claw back losses from the recent five session break. Helping to generate this week’s two-sided trade are mixed signals in the U.S. and overseas markets and a cooler forecast from the latest weather models.

At 09:29 GMT, December natural gas futures are trading $5.881, up $0.128 or +2.22%.

Prices were headed lower early Wednesday before a midday forecast showed the American weather model added demand to the long-range outlook. Bespoke Weather Services said, Wednesday “was a rather interesting day in the natural gas market in that we saw very clear weather reaction during the midday model runs.”

Natural Gas Intelligence (NGI) noted that “After the midday runs trended chillier, adding some heating demand to the forecast, buyers stepped in and pushed the November contract higher.” Bespoke noted that gas prices continued to climb post-settle after the European data set also shifted cooler.

Bespoke went on to say that though widespread cold has yet to show on U.S. weather maps, traders have been closely watching each run of the models. The weather forecaster said the coming pattern “is not exactly impressive, and this month remains on track to be one of, if not the warmest, October in our historical dataset. But, this is enough to push us to neutral, for now, as any additional demand adds overnight could easily send the market higher, even if it is not actually chilly anywhere.”

In other weather-related news, NatGasWeather said, “…Until more impressive widespread freezing temperatures arrive across the United States, national demand just won’t be strong enough to impress and likely will remain soft until early November.”

US Energy Information Administration Weekly Storage Report

Due to the absence of widespread cold weather, traders are looking for another three to four weeks of larger-than-normal storage builds. At 14:30 GMT, the EIA will release its latest storage data.

According to NGI, injection estimates were wide ranging ahead of the report, with some analysts calling for another triple-digit build. Reuters polled 16 analysts, whose estimates ranged from builds of 85 Bcf to 112 Bcf, with a median injection of 95 Bcf. A Bloomberg survey of 11 analysts produced injections as low as 84 Bcf, with a median 97 Bcf. NGI modeled a 93 Bcf injection.

Daily Forecast

This week’s EIA estimates indicate the current deficit to both year-ago levels and the five-year average would continue to tighten as it has over the past month.

Technically, the main trend is down on the daily chart. A trade through $6.593 will change the main trend to up, while a move through $5.332 will signal a resumption of the downtrend.

The main range is $3.944 to $6.593. Its 50% to 61.8% retracement zone at $5.269 to $4.956 is the nearest downside target and value area. This zone is controlling the near-term direction of the market.

The short-term range is $6.593 to $5.332. Its retracement zone at $5.963 to $6.111 is the primary upside target. Since the main trend is down, we’re looking for sellers to come in on the first test of this zone. This could help form a potentially bearish secondary lower top.

Overtaking $6.111, however, will indicate the buying is getting stronger. This could trigger an acceleration to the upside.