Natural Gas Price Fundamental Daily Forecast – Supply/Demand Balances Tightening; Warmer Temps Capping Gains

Natural gas futures are inching lower on Friday after failing to follow-through to the upside following yesterday’s dramatic reversal to the upside. Despite the early setback, however, the market is still hovering just below a pair of main tops at $3.362 and $3.370, putting it in a position to breakout to the upside.

At 10:43 GMT, December natural gas is trading $3.292, down $0.009 or -0.27%.

Thursday’s whipsaw trading action was fueled by weather-driven bears while the bulls focused on the tighter supply/demand balances. The early session selling was fueled by weather reports showing that next week’s short-lived cold shots will be followed by warmer mid-month temperatures, and reports of increased production due to the passing of Hurricane Zeta.

Helping to fuel a turnaround near the mid-session was a government storage report that showed a surprisingly smaller-than-expected 29 Bcf injection.

US Energy Information Administration Weekly Inventories Report

The EIA reported Thursday that domestic supplies of natural gas rose by 29 billion cubic feet (Bcf) for the week-ended October 23. On average, supplies were expected to climb by 37 Bcf for the week, according to analysts polled by S&P Global Platts.

Total stocks now stand at 3.955 trillion cubic feet (Tcf), up 285 Bcf from a year ago, and 289 Bcf above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for October 30 to November 5, “A fresh cold shot will push into the Northeast today with highs of 30s to 50s and chilly lows of 10-30s. A quick break will follow Sunday before another cold shot arrives Monday – Tuesday with similar conditions. For the rest of the U.S. temperatures will warm into the 50s to 80s as high pressure gains ground, warmest over the southern US. The Northeast will warm into the 50s and 60s as next week progresses, while colder air pushes into the Northwest late next week. Overall, national demand will be moderate-high through Tuesday, then low.”

Daily Forecast

No change from Thursday’s forecast.

We are anticipating short-term volatility as traders adjust to the new December futures contract, following the expiration of the November contract. Our longer-term view remains bullish amid support from the hedge funds, rising liquefied natural gas (LNG) demand and an expected reduction in production.

The next major move in the market will likely be determined by whether cold temperatures return in November or December.

We could see a major upside breakout if LNG demand remains strong, production fall and a lingering cold system forms in key demand areas in November.