Natural Gas Price Fundamental Daily Forecast – Fundamentals Bullish but Too Early to Chase Prices Higher

Natural gas futures soared on Thursday following the release of a bullish storage report by the U.S. Energy Information Administration (EIA). For the first time this week, investors set aside concerns over the weather when the surprise government data was released. The response by traders may have been a snapshot of what is to follow this winter when the heating season begins with a supply deficit.

The early price action on Friday suggests that yesterday’s rally may have been a one-and-done event. The market is currently trading lower and there hasn’t been a follow-through to the upside. This may be in response to new weather reports or worries that increased production will help shrink the storage deficit over the near-term.

At 0940 GMT, November Natural Gas futures are trading $3.047, down $0.009 or -0.29%.

On Thursday, the EIA announced a 41 Bcf injection for the week-ended September 21. This was much lower than the 61 Bcf injection forecast for the week by a consensus of analysts. The figure was also well below the five-year average of 81 Bcf.

The figure was also the lowest injection over the past five weeks and wiped out all of the bearish momentum created by a series of September injections.

Current national gas stocks sit at 2.768 Tcf, down 18.3% from the five-year average of 3.389 Tcf for the same time period, according to EIA data.

In other news, according to S&P Global Platts Analytics, U.S. dry gas production averaged historical highs 84.1 Bcf/d in the week thus far. Total U.S. demand also averaged 76.1 Bcf/d in the week to date, nearly 2 Bcf higher than the levels seen last year. Demand is estimated to average 76.1 Bcf/d over the next two weeks.

Forecast

The spike in prices on Thursday laid new groundwork for traders. However, in order to sustain the rally at this time of year, demand is going to have to outstrip production which is at a record high. This could be difficult because much of the recent demand has been driven by volatility in temperatures offsetting movements in heating and cooling demand.

While we may not see a return to Thursday’s high at $3.111 for several weeks, the natural gas market should continue to be underpinned by the supply/demand fundamentals.

Over the next two weeks, the power burn is expected to climb to 30.3 Bcf/d, while heating demand is projected to climb to 14.2 Bcf/d, both pacing above levels seen for the same time last year.

Given the bullish outlook for prices the rest of the year, I feel there is no need to chase prices higher. The opportunities to get long the market will come on periodic pullbacks in the market. Currently, the best support or value zone is $2.929 to $2.886.