Natural Gas Price Fundamental Daily Forecast – Prices Retreat as Output Concerns Fade

Natural gas futures are trading lower early Tuesday after surging to a five-week high yesterday. The rally was fueled by a combination of events including forecasts for increased cooling demand later in the month and an unexpected drop in production.

The early price action suggests the weather news may be supportive, but the lost production may be a short-term event. This means traders should prepare for a volatile, two-sided trade over the near-term until the summer cooling season officially begins.

At 09:32 GMT, July natural gas futures are trading $2.671, down $0.028 or -1.04%.

Production Problems Reduce Output

Prices surged on Monday because of a report of equipment problems in West Virginia. “Output in the Lower 48 U.S. states dropped to a six-month low of 86.2 billion cubic feet per day (bcfd) on Sunday from 89.3 bcfd on Saturday due to big declines mostly in West Virginia and the offshore Gulf of Mexico, according to Refinitiv Eikon data. “That is well short of the all-time daily high of 90.4 bcfd hit on March 29.”

Short-Term Weather Forecast

According to NatGasWeather for May 20 to May 26, “Weather systems with showers and powerful thunderstorms will impact the West and Plains with slightly cool highs of 50s and 60s. Texas to the Mid-Atlantic Coast will be very warm to hot with highs of mid-80s to 90s as high pressure strengthens, hottest over the Southeast. A weather system with showers will impact the Great Lakes & Northeast Monday and Tuesday, but overall mostly comfortable from Chicago to New York City with highs of 60s to 80s. Overall, demand will be moderate due to hot conditions over the southern U.S.

Speculators Cut Net Long Positions

According to the Commodity Futures Trading Commission (CFTC), U.S. gas speculators cut their net long positions last week for an eighth week in a row for the first time since January, betting prices will decline as utilities use what had been growing amounts of production to refill storage caverns to normal levels by the start of the 2020/2021 winter heating season.

Speculators in four major NYMEX and ICE markets cut their bullish bets by 1,076 contracts to 41,826 in the week to May 14, the lowest since May 2016.

Early Look at Storage Report

Reuters is reporting that utilities likely added 104 billion cubic feet of gas to inventories during the week ended May 17. That compares with an injection of 93 Bcf during the same week last year and a five-year (2014-2018) average increase of 88 Bcf for the period.

Daily Forecast

Prices are under pressure early Tuesday because equipment problems that cut output in West Virginia would likely be resolved soon. Columbia Gas Transmission (TCO) said problems affecting its pipe in West Virginia related to a MarkWest plant would likely be resolved on Monday.

The news that the production issues will likely be taken care of over the near-term could keep a lid on prices, however, forecasts power generators would burn more gas than previously expected to produce electricity to meet higher air conditioning demand over the next two weeks are likely to provide support.

Given this situation, the retracement zone at $2.679 to $2.713 is likely to remain resistance over the near-term.

The new ranges are $2.534 to $2.731 and $2.550 to $2.731. Their retracement zones at 2.641 to $2.619 and $2.632 to $2.609 overlap to form support. Price clusters have formed at $2.641 to $2.632 and $2.619 to $2.609.

A pullback into the price clusters are likely to attract new buyers.