Natural Gas Price Fundamental Daily Forecast – Loosening Supply/Demand Balances Weighing on Bullish Sentiment

Natural gas futures plunged to their lowest level since July 28 on Friday, wiping out all of its August gains. The market also closed in a position to change the trend to down on the daily chart, which could be indicating that further downside pressure is coming.

The price action suggests traders are shrugging the current low storage levels, and focusing on the possibility that summer temperatures have peaked. Natural Gas Intelligence (NGI) reported spot gas prices also turned sharply lower as a series of storms was forecast to move in over the weekend, capping temperatures and lowering demand. NGI’s Spot Gas National Average tumbled 21.0 cents to $3.785.

On Friday, October natural gas futures settled at $3.875, down $0.058 or -1.47%.

Bespoke Predicts Above-Normal Demand

NGI wrote, “With the core of summer in the rearview mirror, traders on Friday were focused on what appears to be loosening in supply/demand balances. Although it was hot over the past week, wind generation was strong early in the period. Liquefied natural gas (LNG) demand also was lower for part of the week.”

Bespoke Weather Services said this, along with the cooler near-term outlook, combined to put the pressure on the front of the futures curve. However, the firm noted that LNG feed gas demand was back up to around 11 Bcf on Friday, and winds also had died down. Meanwhile, production has not budged meaningfully since February, NGI reported.

“We do not see things as bearish here at all,” Bespoke said. However, the firm noted that downside momentum could lead the market to test support in the low $3.80s.

“It has been awhile since we had a meaningful pullback that was not simply technical consolidation, prior to right now,” Bespoke said. “Our models still point to under 3.5 Tcf for end-of-season storage levels, so risk of rallying back above $4.00, ultimately, is definitely there, near-term action notwithstanding.”

Short-Term Outlook

Friday’s price action suggests traders are no longer in the “buy the simple dip” mode and are now looking for value, which suggests an every bigger break is coming. Our work indicates that $3.691 to $3.568 is the best downside target and value area.

Fundamentally, stockpiles are still well below sufficient levels to meet winter demand. And with about 12 weeks left in the traditional injection season, anything can happen- both bullish and bearish.