Natural Gas Price Fundamental Daily Forecast – Low Heating Demand Has Traders Pricing in Large Storage Build
Natural gas futures closed sharply lower on Wednesday, hitting a fresh 19-month low amid forecasts calling for less cold weather and lower heating demand next week than previously expected.
The selling pressure also reflected disappointment that Freeport LNG’s long-delayed restart won’t actually take place for weeks or months.
On Wednesday, March natural gas futures settled at $2.915, down $0.142 or -4.65%. The United States Natural Gas Fund ETF (UNG) finished at $9.82, down $0.67 or -6.39%.
Short-Term Weather Forecast
Forecasts calling for cold weather next week failed to move the needle much because they weren’t of the extreme freezing variety. Furthermore, they were likely already priced in last week with traders already looking at less-colder patterns for the second week in February.
According to NatGasWeather, “The overnight and early morning weather data was colder trending for next week as frigid Canadian air impacts much of the northern and central U.S. with frosty lows of -20s to 20s. However, nat gas prices dropped under $3 overnight as the Feb. 6-8 pattern trended warmer and where national demand would ease to more seasonal levels.”
Traders also said the new milder forecasts are reducing the chances of disruptive freeze-offs which would lead to increased production and put further pressure on prices.
Freeport LNG: The Good and the Bad
First the good news. If the reports from earlier in the week are true then the Freeport LNG plant that has been out of commission since June 8, 2022 is ready to begin the process of exiting a seven-month outage, pending regulatory approval.
The bad news is it may take until February, March or even later for the plant to actually start pulling in big amounts of pipeline gas. By then, the winter demand season will be over and the market will need the demand from the start up to prevent prices from collapsing.
Once up to speed, the facility can pull in about 2.1 billion cubic feet per day (bcfd) of gas and turn it into LNG when operating at full power. That is about 2% of what U.S. gas producers pull out of the ground each day.
Sneak Peek at US Government Storage Report
The market will head into Thursday’s U.S. government storage report in a bearish position and with some technical traders saying it is in oversold territory. Furthermore, the weak close marked the lowest front-month settlement since 2021.
Without Freeport LNG or mid-winter heating demand, traders are looking for Thursday’s EIA storage report to come in on the bearish side.
Expectations are for a pull of 81 Bcf, which compares with a withdrawal of 217 Bcf a year earlier and a five-year average decline of about 185 Bcf.
The big concern at this time is that natural gas bulls are running out of winter, which means so are getting ready to throw in the towel on the season.