Natural Gas Price Fundamental Daily Forecast – Supported by Bullish Weather Forecast, Supply Deficit

Although the market is nearing previous resistance levels that could limit gains, the market is likely to remain underpinned as long as the weather forecast calls for cooler-than-average temperatures over the next two weeks. Cooler temperatures, increased demand and a widening supply deficit should continue to underpin the market and could even launch a rally into levels not seen in close to a year.
James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures surged on Monday after new weather forecasts called for colder temperatures in early October. According to the National Weather Service, there is an increased likelihood of cooler-than-average temperatures across much of the north of the U.S. over the next eight to 14 days.

Early Tuesday, natural gas futures continue to receive support from speculators, putting the market in a position to challenge the June high at $3.064. Overtaking this level will put the market within striking distance of highs not reached since mid-November.

At 0650 GMT, November Natural Gas is trading $3.037, up $0.007 or +0.23%.

S&P Global Platts Analytics projections show an uptick in heating demand, likely due to the expected cold front, with residential and commercial demand averaging 16.1 Bcf/d in the next eight to 14 days, compared with 14.2 Bcf/d for the same time period last year.

Residential and commercial demand averaged 12.2 Bcf/d since the beginning of September.

On the supply side, total U.S. dry gas production dropped 1.2 Bcf day on day after hitting 84 Bcf/d Sunday, largely due to production declines in the Northeast, according to data from Platts Analytics. Output is projected to stay at elevated levels, averaging 83 Bcf/d over the next two weeks.

Month to date, production has averaged 83.2 Bcf/d, up nearly 10 Bcf from year-ago levels of 73.5 Bcf/d.

Forecast

Although the market is nearing previous resistance levels that could limit gains, the market is likely to remain underpinned as long as the weather forecast calls for cooler-than-average temperatures over the next two weeks.

Longer-term, the market should be underpinned by expectations of a supply deficit at the start of the winter heating season so this early unexpected surge in demand will only help to attract bullish traders.

Recapping last week’s U.S. Energy Information Administration storage report, stocks are 672, or 20%, less than the year-ago level or 3.394 Tcf and 586 Bcf, or 18%, less than the five-year average of 3.308 Tcf. At 2.722 Tcf, total working gas is below the five-year historical range and sits 196 Bcf lower than the five-year minimum.

Looking ahead to Thursday’s storage report, traders are looking for a 63.4 Bcf injection for the week-ending September 21, which would come in below the five-year average 81 Bcf build and close to the 64 Bcf build recorded a year ago.

Cooler temperatures, increased demand and a widening supply deficit should continue to underpin the market and could even launch a rally into levels not seen in close to a year.

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