Natural Gas Price Fundamental Daily Forecast – Double-Digit Prices Likely Due to European Crisis

Natural gas futures are trading flat Thursday after touching a 14-year high the previous session before settling lower. Today’s early price action suggests traders are sitting on the sidelines ahead of the U.S. government storage report later today.

At 05:45 GMT, October natural gas futures are at $9.241, up $0.013 or +0.14%. On Wednesday, the United States Natural Gas Fund is trading $31.89, down $0.38 or -1.18%.

Weather Shifts Fueling Heightened Volatility

October natural gas futures traded higher early Thursday based on favorable overnight forecasts, but prices collapsed after midday forecasts called for less hot weather and lower air conditioning demand over the next two weeks than previously expected.

The volatile reversal to the downside took place even though daily output fell and hotter-than-normal weather continued on the West Coast and Texas.

Some of the selling was fueled by technical indicators signaling overbought conditions. Fundamental traders were also surprised by the strength in the market due to potentially bearish factors such as the ongoing Freeport outage, the upcoming hurricane season and rising production.

Bullish International Developments

Traders are betting on long-term bullish conditions to continue due to expected shortages in Europe and the fear of higher prices from Russia.

Reuters reported on Thursday that Germany is likely to miss a November target for gas storage levels set by the government to avoid an energy crisis, according to the head of the Bundesnetzagentur energy regulator. He warned that Europe’s biggest economy faced two tough winters.

Germany has already hit its first target for gas storage facilities to be 75% full by September 1. The next goals are for storage levels to be at 85% by October 1 and 95% by November 1.

Klaus Mueller, head of the Bundesnetzagentur, told t-online, “I don’t expect we will achieve the next targets as quickly as the first one.”

Earlier in the week, Russian state gas company Gasprom said on Tuesday that European gas prices could spike by 60% to more than $4,000 per 1,000 cubic meters this winter, as the company’s own export and production continues to fall amid Western sanctions.

Short-Term Outlook

Despite the reversal to the downside on Wednesday, natural gas is still long-term bullish. Furthermore, professionals have been more comfortable buying dips than chasing higher prices. A near-term correction will play right into their hands.

The market is still likely to have a deficit to the five-year average despite more gas flowing into storage due to the Freeport outage and production has not been up to speed. However, the most compelling reason why U.S. natural gas is likely to touch double-digits are the soaring European gas prices.