Natural Gas Price Fundamental Daily Forecast – Increased Production Offsetting Storage Deficit Worries

Nearby natural gas futures are trading nearly flat early Friday as investors continue to digest Thursday’s U.S. Energy Information Administration’s (EIA) weekly storage report. Natural gas futures are mixed overall with gains being limited in the nearby September and October contracts, but prices surging in the winter strip – November to March.

At 0910 GMT, October Natural Gas is trading $2.959, up 0.006 or +0.20%.

On Thursday, the EIA announced a storage build of 48 Bcf, bringing total stocks to 2.345 Tcf for the week-ending August 17. Total stocks are 684 Bcf less than inventories one year ago and 599 Bcf less than the five-year historical average.

The lower-than-expected build followed last week’s first higher-than-expected injection this summer. With the injection miss, the storage deficit widened. Normally, this would lead to a jump in prices, but strong production is diminishing the effects of the low inventories for the nearby contracts. Deferred contract traders, however, like the news because it increases the chances of a supply deficit at the start of heating season in November.

According to S&P Global Platts Analytics data, “US dry gas production fell 500 MMcf/d on the day to 81.9 Bcf/d Thursday, but was still above average levels at this time of year in 2017.”

“US dry gas production has averaged 81.6 Bcf/d thus far in the month, 8.9 Bcf/d higher than this time last year”, according to Platts Analytics.

Platts also said that “imports from Canada increased 100 MMcf/d on the day to 4.5 Bcf/d Thursday”.

Weather Outlook

According to the National Weather Service, the most recent six- to 10-day temperature forecast calls for cooler-than-average temperatures for much of the Southwest, Pacific Northwest, and Rockies.

Platts also said the power burn totals in the Pacific Northwest decreased by 18% on the day to 991 MMcf/d.

Forecast

The outlook for the nearby September and October futures contracts points to limited gains and lower prices. The markets are struggling to find enough buying to trigger an upside breakout over the recent high at $2.979. Even if we saw a breakout, hedgers are likely to come in as the market approached the psychological $3.000 level.

The bearish news likely to drive nearby prices lower is falling spot prices, lower demand due to the return of normal temperatures and production near record levels.

The bullish news that is providing speculative support for the deferred winter futures contracts is the widening of the storage gap. Although the gap is likely to shrink before heating season, winter will likely begin with a supply shortage.