Natural Gas Price Fundamental Daily Forecast – Moderating Temps, Rising Output Pressuring Prices

Natural gas futures are trading lower early Monday as concerns over moderating temperatures and rising production continue to weigh on nearby futures contracts as well as the spot market.

At 0929 GMT, October Natural Gas is trading $2.905, down $0.008 or -0.27%.

Weather Forecast

According to NatGasWeather.com for the period August 27 to September 3, “Hot high pressure continues to build across the eastern half of the country with highs of upper 80s to 90s returning across the Midwest, Mid-Atlantic, and Northeast. This includes highs of mid-90s for major Northeast cities such as Washington, D.C. and NYC, pushing national demand to high levels the next several days, aided by hot and humid 90s over the southern US. Cooler exceptions will be over the NW/N, Rockies/Northern Plains as a cool shot sweeps through. Weak cooling will graze the Midwest Thursday-Friday, easing national demand briefly. Overall demand will be high.

Production

According to S&P Global Platts Analytics, U.S. dry gas production averaged 82.4 Bcf/d over the past seven days. Output is forecast to maintain this level over the next two weeks. So far in August, production averaged 81.7 Bcf/d, up 9.1 Bcf/d from a year-ago level of 72.6 Bcf/d.

Demand

S&P Global Platts Analytics also reported that an 800 MMcf day-on-day climb was mainly driven by rising power burns in the Northeast and Midcontinent production areas. However, this consumption increase was somewhat offset by lower Southeast demand. Total demand stood at 76.1 Bcf Friday, up 400 MMcf day on day. Demand is estimated to pick up and average 79.4 Bcf/d over the next seven days.

U.S. Energy Information Administration Data

On Thursday, the U.S. Energy Information Administration (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.

Nationwide gas stocks are at 2.435 Tcf in the week that ended August 17, a 19.7% deficit to the five-year average of 3.034 Tcf, according to the EIA.

Forecast

With the production growth expected to offset the slight rise in demand, sellers are likely to be in control on Monday. If the early downside momentum continues then look for a potential break into the near-term technical target at $2.865 to $2.838.

The nearby futures contract are expected to feel most of the selling pressure due to weakness in the spot months. However, the deferred winter strip –November to March – is expected to continue to remain firm as speculators price in a storage deficit at the start of the winter heating season in November.

With 11 weeks remaining in the traditional injection season, it would take a weekly build of 88 Bcf in order to break the 3.4 Tcf barrier, a level which was considered the lower bound of market expectations a few months back, according to Mobius Risk Group. Intercontinental Exchange futures (ICE) showed end-of-season storage inventories sitting at 3,356 Bcf, more than 200 Bcf below the five-year minimum of 3,582 Bcf. To achieve even this level, weekly injections would need to average 84 Bcf through the end of October.