Natural Gas Price Fundamental Daily Forecast – Focus Shifting to Shrinking Supply Deficit

Natural gas futures are trading slightly higher on Friday. The market is trading inside yesterday’s range which suggests investor indecision and impending volatility. It looks like the market survived yesterday’s attempt to breakout to the downside. However, gains are being capped by uncertainty over the mid-term weather forecast. Weather forecasters have been teasing this week with the potential for colder temperatures later in the month, but Thursday’s government storage report showed another tightening of the deficit.

At 1057 GMT, March natural gas is trading $2.867, up $0.054 or +1.92%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on Thursday a 91 Bcf withdrawal from U.S. gas stocks for the week-ended January 4. This number came in on the strong side of the estimate needle, but failed to generate any major buying interest. Trader consensus showed an expected 84 Bcf withdrawal. The five-year average decline stands at 187 billion.

The data, also showed a revision that resulted in decreased working gas stocks of about 4 billion cubic feet in the Mountain region last week. That brought the actual weekly withdrawal down to 87 Bcf.

Total stocks now stand at 2.614 trillion cubic feet, down 204 billion cubic feet from a year ago, and 464 billion below the five-year average, the government said.

Short-Term Weather Forecast

According to NatGasWeather for January 10-16, “A strong cold front will push across the Great Lakes and Northeast the next several days with lows reaching the 0s to 20s for strong demand. However, much of the rest of the country will be mostly mild with highs of 40s to 70s to counter. Weather systems with rain and snow will track into the West Coast, but with only slight cooling. This weekend into early next week will bring weather systems across the southern and eastern US with rain and snow, followed by warming mid next week. Overall, national demand will be moderate-high late this week into early next week.”

Forecasts

Traders seem to be glossing over the EIA report and the forecasts for cooler temperatures later in the month. This is because the focus seems to be shifting to the shrinking supply deficit.

Jefferies LLC analysts said, “Given the much warmer weather y/y over the past several weeks, we now believe it is possible that storage levels can normalize in the back half of winter.”

“We estimate that production needs to average about 8 Bcf/d higher y/y for the remainder of winter for storage to reach average by the end of March, implying production of around 85 Bcf/d, in-line with recent levels.

Technically, look for the market to strengthen on a sustained move over $2.932. A sustained move under $2.771 will signal a resumption of the downtrend.