Natural Gas Price Fundamental Daily Forecast – Increased Production Offsetting Weather Concerns

Mixed fundamentals are pressuring natural gas futures for a second session after a forecast of hotter temperatures drove the market higher at the start of the week.

At -0900 GMT, August Natural Gas futures are trading $2.919, down 0.010 or -0.34%.

The price action in the nearby July futures contract and the next up August contract clearly shows that $3.000 is major resistance. Even if this price were violated, I suspect that professionals are waiting to re-position their hedges.

While most of the focus recently has been on the weather, traders can’t overlook output. Record high production levels so far this year are one of the reasons prices have stayed below the $3 level, even with a 22% deficit in national gas stocks; the five-year average is $2.329/MMBtu.

Additionally, according to the Energy Information Administration, current working gas in underground storage sits at 1.817 Tcf for the week ended June 1.

Based on S&P Global Platts Analytics estimates, U.S. production fell 1.4 Bcf on the day to 76.8 Bcf Tuesday, largely due to production declines in the Rockies and the Northeast. What could lead to further price pressure, or at least cap gains is expectations of a rise in production to 77.9 Bcf/d over the next seven days.

And here is the real kicker, in the month to date, production is 78.3 Bcf/d from a year ago.

As far as demand is concerned, the National Weather Service forecast for the next six to 10 days calls for the likelihood of warmer-than-average temperatures for much of the country except the Rockies and Southwest regions, were cooler temperatures are expected.

NatGasWeather.com for the period June 12-18 says, “A hot upper ridge will dominate the central and southern U.S. this week with highs of upper 80s to 100s for strong demand. The northern U.S. will see numerous weather systems track across with showers and slightly cool versus normal conditions with highs mainly in the 60s to 80s for light heating and cooling demand. A warm break will spread across the northern and eastern U.S. this weekend into next week for stronger demand. The West will be heating up this week with highs mainly in the 80s to 100s, then cooling this weekend.”

Total U.S. demand edged up 300 MMcf on the day to 72.3 Bcf Tuesday. Platts analytics projects consumption to increase to 73 Bcf/d over the next seven days.

Total consumption stands at 71 Bcf/d so far in June, up 5% from a year ago.

With month to date production at 78.3 Bcf/d from a year ago and month to date consumption at 71 Bcf/d, production is expected to be larger than demand, meaning it will be hard to sustain any rally.