Natural Gas Price Fundamental Daily Forecast – Injection Season Could Begin with Surprise Withdrawal

Natural gas futures are trading lower early Thursday following yesterday’s dramatic reversal to the upside. The price action is likely being fueled by position-squaring ahead of Thursday’s weekly storage report from the U.S. Energy Information Administration.

At 0816 GMT, June Natural Gas futures are trading $2.698, down $0.011 or -0.41%.

The rebound rally may have also been fueled by expectation of a withdrawal for the first week of the injection season due to the lingering April cold.

The lack of follow-through to the upside early Thursday also suggests that yesterday’s move was essentially driven by short-covering rather than aggressive counter-trend buying. This makes sense because other than technically oversold conditions, there is no compelling reason to buy natural gas at this time.

Forecast

Today’s weekly storage report is expected to show a draw of about 14 billion cubic feet (Bcf) in the week ended April 6. That compares with a decline of 29 Bcf in the preceding week, an increase of 10 Bcf a year earlier and a five-year average rise of 9 Bcf.

Total natural gas in storage stands at 1.354 trillion cubic feet (Tcf), according to the EIA. That figure is 697 Bcf, or around 34%, lower than levels at this time a year ago, and 347 Bcf, or roughly 20.4%, below the five-year average for this time of year.

Overall, prices are expected to remain under pressure over the near-term. Despite the fact that stocks in storage are well below their seasonal averages for this time of year, record high domestic production levels have offset this fact.

Additionally, the lingering below average temperatures are starting to soften, suggesting that mild spring temperatures are just around the corner. Since professional traders look 10 to 14 days ahead, this new forecast is mainly driving the price action in the futures market.

Although periodic short-covering rallies could push volatility to elevated levels over the short-run, the basic fundamentals are bearish. Sellers are basing their assessment of the market on rising production, improving weather conditions and expectations of lower demand.