Natural Gas Price Fundamental Weekly Forecast – Supported by Supply Gap, Rising Exports, Stagnant Production

Natural gas hit its highest price since March 14 on concerns over a possible supply gap going into cooling season, rising exports and stagnant production.

July Natural Gas settled at $2.879, up $0.054 or +1.91%.

On Thursday, natural gas prices rose shortly after the release of a weekly government report. The weekly injection was on-target, but traders treated the report as old news, and began pricing in increasing demand due to updated weather forecasts calling for rising temperatures into the end of the month.

According to the U.S. Energy Information Administration, domestic supplies of natural gas rose by 106 billion cubic feet for the week-ended May 11. Analysts had forecast an increase of 105 billion cubic feet and on average over the last five years for the same week, inventories rose by 67 billion cubic feet.

Total stocks now stand at 1.538 trillion cubic feet, down 821 billion cubic feet from a year ago, and 501 billion below the five-year average, the government said.

In other news, traders are also saying that over the long-run, the U.S. is working to export more of its natural gas. Exports of liquefied natural gas, which can be transported by ship, are expected to increase fivefold during the next two years, accounting for over 10 percent of all U.S. production.

Weekly Forecast

The weather is likely to be the key driver of the price action into late May/early June. According to reports, temperatures are expected to be warmer than average across much of the United States, boosting air-conditioning usage. This should raise electricity usage which will increase demand for natural gas, which fuels 32 percent of all electricity generation.

Currently, natural gas stocks are 501 billion below the five-year average. This gap is unusually high for this time of the year so it is going to take a series of triple digit storage builds to fill it before temps get hotter.

Bullish traders are increasing bets that the summer cooling season will begin with a sizable storage deficit. This will make it difficult to fill the supply gap and prices should rise on this event. So essentially, it’s all up to the weather as to whether this rally continues.