Natural Gas Price Fundamental Daily Forecast – Early Pressure Fueled by Mixed Weather Ahead of EIA Report

Natural gas futures are edging lower in a lackluster trade on Thursday as traders prepare for the release of key weekly government data at 14:30 GMT.

The market is down after failing to follow-through to the upside following yesterday’s double-digit gain. That move was fueled by a drop in output at the start of the month and expectations gas demand will rise once the Freeport liquefied natural gas (LNG) export plant in Texas the outage that had curtailed demand since June 8.

At 10:04 GMT, December natural gas futures are trading $6.024, down 0.244 or -3.89%. On Wednesday, the United States Natural Gas Fund ETF (UNG) settled at $19.90, up $1.06 or +5.63%.

Weather Conditions Having Tug of War Effect on Prices

Forecasts calling for lower demand over the next two weeks have been capping gains. With the weather expected to remain mild through at least mid-November, utilities should be able to keep adding gas into storage for a few weeks beyond the usual Oct 31 end of the injection season.

However, overnight models suggested that earlier forecast may be changing.

“Prices are back up again as of today (Wednesday) … as the overnight runs of the major weather forecast models locked on to the possible arrival of widespread below-average temperatures around mid-November,” analysts at energy consulting firm Gelber & Associates said.

Gelber also noted that price volatility has been “ramped up” this week “as there is a tug of war happening in bullish and bearish drivers in the market.” Rapid price changes in recent weeks have boosted the contract’s 30-day implied volatility index to its highest level since October 2021 for a second day in a row. The market uses implied volatility to estimate likely price changes in the future.

Short-Term Weather Forecast

According to NatGasWeather for Nov 3-9, “The eastern half of the US will be warmer than normal with highs of 60s to 80s as high pressure rules.

The West will be cool as weather systems sweep through with rain, snow, and highs of 30s and 50s. A weather system will eject out of the West and track across Texas Friday-Saturday with heavy showers but still comfortable with highs of 60s and 70s.

A warm pattern will continue to rule the eastern ½ of the U.S. on Sunday-Wednesday, while the West remains cool.

Overall, very light national demand is forecast over the next 7-days.”

Energy Information Administration Weekly Forecast

For today’s EIA storage report, NatGasWeather says “Survey averages suggest an injection of +95-102 Bcf, considerably larger than the 5-year average of +45 Bcf. It was warmer than normal over the eastern 2/3 of the U.S., while cool over the West. We expect a build of +100 Bcf, aided by the strongest wind energy generation in 4-months and could be the reason if it misses bearish.

Natural Gas Intelligence (NGI) says for today’s report, which covers the week-ended Oct 28, estimates submitted to Bloomberg showed injection expectations ranging from 87 Bcf to 109 Bcf, with a median prediction of 102 Bcf. Results of a Reuters poll landed at a median of 99 Bcf, with estimates spanning 81 Bcf to 109 Bcf. Estimates reported to the Wall Street Journal ranged from increases of 84 Bcf to 109 Bcf, with an average of 98 Bcf. NGI estimates a 110 Bcf increase.

Daily Forecast

The EIA forecasts compare bearishly with a 66 Bcf increase in the same week last year and a 45 Bcf five-year-average build.

We’re expecting more sideways trading with the market caught between a very weak short-term demand picture and a more supportive medium-term outlook. However, conditions could flip toward the bullish side quickly once the Freeport LNG plant comes back into service and the country gets hit with its blast of frigid air.