Natural Gas Price Fundamental Daily Forecast – EIA Could Report a Triple-Digit Storage Injection

Natural gas futures are trading nearly flat early Thursday after posting a dramatic technical closing price reversal top the previous session. The move did not change the trend to down, but it sure looked like longs were liquidating and new shorts were entering the market.

Traders blamed the volatile sell-off on a price drop in Europe and a rapidly improving domestic supply situation. Natural Gas Intelligence (NGI) also reported a drop in spot gas prices amid a moderate temperature forecast for much of the Lower 48.

At 04:23 GMT, December natural gas futures are trading $5.838, up $0.035 or +0.60%.

According to Leticia Gonzales at Natural Gas Intelligence (NGI), “Despite the rumbling overseas about potential energy shortages this winter, U.S. supplies are on much stronger ground than they were only a month ago. Inventories as of September 24 stood 575 Bcf below year-ago levels and 213 Bcf below the five-year average, but forecasts for mild weather through at least the end of October are seen leading to plump inventory builds that could quickly tighten up those deficits.”

Translation:  Unless there is an early start to winter, U.S. producers may be able to rebuild the current deficit enough to cushion the impact of heating demand later in the season.

US Energy Information Administration Weekly Storage Report

Ahead of Thursday’s EIA weekly storage report, due to be released at 14:30 GMT, traders are looking at the possibility of a triple-digit injection.

NGI is reporting that a Bloomberg survey produced results ranging from a build of 101 Bcf to as high as 114 Bcf. The median of those results was a 105 Bcf injection.

A Wall Street Journal poll included injections as low as 84 Bcf, but the average still landed at a stout 102 Bcf. Reuters’ poll was wider, with high-side estimates hitting 115 Bcf and the median injection coming in at 104 Bcf. NGI modeled a 114 Bcf injection.

NGI said a storage build even at the low end of major surveys would surpass the five-year average build of 81 Bcf as well as last year’s 75 Bcf injection, according to the EIA.

Daily Forecast

The short-term direction of the December natural gas futures contract will be determined by trader reaction to the 50% to 61.8% retracement zone at $5.736 to $5.534.

Look for an upside bias on a sustained move over $5.736. Prices could accelerate to the upside if buyers can overtake $6.031 with conviction.

A sustained move under $5.534 will be a sign of weakness. Taking out $5.469 will change the main trend to down. This could trigger an acceleration into the main retracement zone at $5.269 to $4.956.