Natural Gas Price Fundamental Daily Forecast – Demand Worries Limiting Gains as Specs Wait for Heat to Return

Natural gas futures are trading slightly better on Friday after posting a volatile, two-sided trade earlier in the session. The price action suggests investor indecision and impending volatility. Gains are being capped by another triple-digit build in supply, and as some of the hot weather predicted earlier in the week is being stripped from the forecast.

At 13:22 GMT, July natural gas is trading $3.054, up $0.013 or +0.43%.

Gains are being limited, but so are the losses early in the session. This suggests there are still buyers coming in to provide support. Maybe they believe the storage builds and the seasonal temperatures are short-term events, and eventually we’re going to see a pick-up in demand.

The fundamentals may not be strong enough to trigger a runaway rally, but I do think there is enough bullish news to prevent a price collapse. Buyers are out there, but they may be waiting for a pullback into a value area. The price action is telling me that it’s too early to chase prices higher.

Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas rose by 98 billion cubic feet (Bcf) for the week-ended May 28. That was smaller than the increase of 118 Bcf forecast by HIS Markit. Actually, estimates were all over the place, indicating a lack of confidence in the forecasts.

Estimates ahead of Thursday’s report featured a wide range of guesses. Natural Gas Intelligence (NGI) said the consensus pointed to an injection that could fall below both last year’s 103 Bcf injection and the 96 Bcf five-year average.

NGI also reported that Reuters polled 17 analysts, whose estimates ranged from a build of 86 Bcf to 107 Bcf, with a median of 95 Bcf. A Bloomberg survey of 11 analysts had a tighter range of projections, but landed at a median of 94 Bcf. The average estimate of a Wall Street Journal poll also was 94 Bcf, while the NGI model showed a 95 Bcf injection.

Total stocks now stand at 2.313 trillion cubic feet (Tcf), down 386 Bcf from a year ago and 61 Bcf below the five-year average, the government said.

Short-Term Weather Forecast

According to NatGasWeather for June 4 – 10, “National demand will be light today as weather systems bring showers and pleasant highs of 70s-80s over Texas and the East. The West remains hot as strong high pressure produces highs of mid-80s to 100s, hottest over California and the Southwest.

Upper high pressure will expand across the central, northern and eastern U.S. this week-end through next week with highs of mid-80s to lower 90s, with 100s across the Southwest. Showers and cooling will push into the West Coast this weekend with highs of 60s and 70s, ending the recent heatwave.

Overall, low national demand into Saturday, then increasing to high next week.”

Daily Outlook

Although the official start of the summer season is still weeks away, the mention of heat in the forecast for next week has created a bullish buzz for natural gas futures. However, the price action the past three sessions, following Tuesday’s upside price spike suggests that the major buyers aren’t convinced yet.

Look for a bullish tone to possibly develop on a sustained move over $3.089, and for a bearish tone to possibly develop on a sustained move under $3.054.

Although a bearish tone could develop, we don’t expect to see a major change in trend. We also think any weakness will be a short-lived move.

June is expected to be hot overall, according to Bespoke Weather Services. It’s just sputtering at the start. The 10-15 day forecast isn’t bearish, per se, just not as bullish as it was at the start of the week.