Natural Gas Price Fundamental Daily Forecast – Gains Capped by Mild Temperatures, Narrowing Storage Deficit

Natural gas prices are inching higher early Friday after the market was driven lower the previous session on milder weather forecasts and a bigger-than-expected injection into storage last week.

At 08:24 GMT, December natural gas futures are trading $5.379, up $0.033 or +0.62%.

NOAA Forecasts Warmer than Average Winter Weather

Winter weather in much of the United States is expected to be warmer than average, according to the National Oceanic and Atmospheric Administration (NOAA).

Across much of the Lower 48, the demand outlook leans toward the bearish side.

Above-average temperatures are favored across the South and most of the eastern United States as La Nina conditions developed for a second consecutive winter.

Warm winter conditions in the East could minimize heating demand, while above average temperatures in the South could leave major markets with mild weather that drives neither heating nor cooling needs.

Natural Gas Intelligence’s (NGI) Keven Dobbs noted, “Looming winter freezes could drive elevated demand for natural gas in parts of the northern United States, while festering drought conditions in the Southwest could fuel consumption when weather heats up next spring to offset lighter hydropower.”

US Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas rose by 92 billion cubic feet (Bcf) for the week-ended October 15. That was slightly larger than the average increase of 88 Bcf forecast by analysts polled by S&P Global Platts.

Natural Gas Intelligence (NGI) reported ahead of the report that analysts responding to major surveys projected a build near 90 Bcf. Reuters polled 17 analysts, whose estimates ranged from builds of 80 Bcf to 97 Bcf, with a median injection of 90 Bcf. The average of 14 estimates in a Wall Street Journal poll also landed at a 90 Bcf injection. The median of a Bloomberg survey, in which projections ranged from 84 Bcf to 95 Bcf, was 91 Bcf. NGI modeled a 95 Bcf increase in inventories.

Total stocks now stand at 3.461 trillion cubic feet (Tcf), down 458 Bcf from a year ago and 151 Bcf below the five-year average, the government said.

Daily Forecast

Technically, the major support zone is $5.269 to $4.956. This area stopped the selling at $5.070 on Tuesday. If it fails to hold, prices could collapse with $3.944 a potential downside target. This would likely occur if the new forecasts for November come in warmer than normal.

On the upside, buyers would have to overtake two resistance zones at $5.591 to $5.713 and $5.832 to $6.011 before the market can make another run at its recent top at $6.593.

We could be in the “sell the rally” mode until the weather turns colder.

Analysts at Energy Aspects said in a recent research note, “Ultimately, the prospect of gas rationing prices and deliverability risks hinges on how cold the winter will be,” the firm said. “Conditions will have to border on 10% colder than normal on an average basis, or there must be significant cold early in the season.”