Natural Gas Price Fundamental Daily Forecast – One-Fifth of Off-Shore Production is Shut Down

Natural gas futures posted a bullish outside move on Thursday, driven by technical factors and production concerns over the damage caused by Hurricane Harvey and the flooding along the Gulf Coast of Texas.

October Natural Gas settled at $3.040, up 0.101 or +3.44%.

According to the U.S. Energy Information Administration, domestic supplies of natural gas rose by 30 billion cubic feet for the week-ended August 25. Traders were looking for a build of about 29 billion cubic feet.

The EIA report also showed total stocks now stand at 3.155 trillion cubic feet, down 239 billion cubic feet from a year ago, but 8 billion cubic feet above the five-year average.

In other news, U.S. gross natural gas output in the lower 48 states rose by nearly 0.8 billion cubic feet per day (bcfd) to a high for 2017 of 81.4 bcfd in June, the EIA said on Thursday, in its monthly 914 production report.

The rise was led by gains in Texas, the largest gas-producing state, Oklahoma, Louisiana and Ohio. Output in Texas increased by almost 0.1 bcfd in June to 21.9 bcfd.

Production, however, is likely to fall sharply in the coming weeks, as about one-fifth of offshore production has been shut down due to Tropical Storm Harvey.

Texas’s Eagle Ford shale region, which has been substantial growth in recent years thanks to the shale boom, has also seen production shut down due to the storm, and it may be some time before activity resumes.

Forecast

Natural gas is attempting to breakout to the upside due to supply issues. A strong upside bias should develop as long as production remains shutdown or limited. Since the move is being mostly driven by short-covering, I suspect it will come down hard once it is announced that production will resume.

However, in the meantime, a sustained move over $3.042 will indicate the presence of buyers. If this move generates enough upside momentum then the next likely targets will be a pair of main tops at $3.131 and $3.142 and a major technical retracement zone at $3.160 to $3.245.

On the downside, the first level of support comes in at $3.011 to $2.971, followed by $2.880.