Natural Gas Price Fundamental Daily Forecast – European Prices Soar with US Market Poised to Trend Lower

Natural Gas futures are trading lower on Tuesday after a disappointing performance in Monday’s holiday-shortened market. U.S. speculators were hoping the domestic market would follow the path of the sharply higher European trade, but that wasn’t the case. The divergence in the price action between the U.S. and European markets clearly highlights the major differences in the fundamentals.

The European market is clearly focused on the possibility of a huge supply shortage this winter. Meanwhile, in the U.S., there is some concern over a supply deficient relative to the five-year average, but there is still plenty of gas around for U.S. heating needs.

At 03:11 GMT, October natural gas is trading $8.691, down $0.072 or -0.82%. Last Friday, the United States Natural Gas Fund ETF (UNG) settled at $30.72, down $1.02 or -3.21%.

EU Gas Price Rockets Higher after Russia Halts Nord Stream Flows

European gas prices rocketed as much as 30% higher on Monday after Russia said one of its main gas supply pipelines to Europe would stay shut indefinitely, stoking renewed fears about shortages and gas rationing in the European Union this winter, Reuters reported.

The benchmark gas price surged as high as 272 Euros per megawatt hour (MWh) when the market opened after Russia said on Friday that a leak in Nord Stream 1 pipeline equipment meant it would stay shut beyond last week’s three-day maintenance halt.

US Market Entering Shoulder Season

While European prices are soaring, U.S. prices are testing their lowest level in nearly three weeks, pushed lower by production that held near all-time highs and storage data confirmed looser balances.

The market is currently testing a short-term support area at $8.762 to $8.472 that should determine whether traders make another run at the elusive $10.00 area, or if prices retreat sharply into the next value area at $7.669 to $7.121.

Last week, the U.S. Energy Information Administration (EIA) reported that inventories for the week-ending August 26 rose by 61 Bcf. By comparison, EIA recorded a 21 Bcf injection for the year-earlier period, and the five-year average injection is 46 Bcf.

The 61 Bcf build lifted stocks to 2,640 Bcf, which is 228 Bcf below last year at this time and 338 Bcf below the five-year average.

The second larger-than-normal injection in a row suggests the U.S. market may be entering the “shoulder season”, where temperatures are not too hot, or not too cold, allowing storage levels to increase ahead of the winter heating season.

And this shoulder season is very important because supply is currently running 338 Bcf below the five-year average. There is still plenty of gas in storage, but that supply gap needs to close to make everyone comfortable heading into winter.

The delay in the reopening of the Freeport LNG facility is helping to speed up the process, but production is going to have to remain near record highs and the weather is going to have to change to more seasonal temperatures in order to close the deficit gap. If above average temperatures continue into October, there could be a problem when the cold weather arrives.