Natural Gas Price Fundamental Daily Forecast – Reduced Production, Easing of Restrictions Fueling Rally

Natural gas futures are edging higher on Tuesday shortly after the cash market opening, supported by lower production numbers and expectations of increasing demand tied to the easing of restrictions and lockdowns. Spot gas prices are also being supportive, moving sharply higher on Monday, driven by gains of nearly 50 cents in the Northeast.

At 12:44 GMT, July natural gas futures are trading $2.016, up $0.057 or +2.91%.

Production Cuts Finally Paying Off

Natural Gas Intelligence (NGI) reported late Monday that top-day estimates for U.S. production were at 84.4 Bcf, according to Bespoke, which is more than 11 Bcf below late-November highs.

“It becomes more difficult to pin down where we go now from here,” said Bespoke. “The improvement in data justified getting prompt-month prices out of the $1.60s, but it does not yet eliminate risk of completely filling storage, so bulls must still be cautious until we see more tightening in the data.”

Short-Term Weather Outlook

According to NatGasWeather for May 19- 25, “A slow moving weather system will stall across the east-central US this week with heavy showers and thunderstorms, although still quite comfortable highs of 60s and 70s. A second weather system will bring rain and snow showers to the West with slightly cool highs of 50s to 70s. Over the central US and Texas, high pressure will set up with highs of 80s to 90s, hottest in West Texas. This weekend will bring ideal temperatures of 60s to 80s across the northern US, while very warm over the southern US with 80s to low 90s. Overall, light demand besides hotter Texas.”

US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 103 billion cubic feet for the week ended May 8. That compared with an estimated increase of 101 billion cubic feet from S&P Global Platts Analytics.

Total stocks now stand at 2.422 trillion cubic feet, up 799 billion cubic feet from a year ago, and 413 billion cubic feet above the five-year average, the government said.

Daily Forecast

The buyers came in strong early Monday after settling near its low of the week on Friday. This caught many of the bears of guard, including this analyst, who expected to see some follow-through to the downside. So let’s say that Monday’s rally was fueled by short-covering.

If the short-covering continues, but is accompanied by aggressive counter-trend buyers on Tuesday then I can build a case for a rally into at least $2.093 to $2.157 over next couple of days.