Natural Gas Price Fundamental Daily Forecast – Supported By Weather-Related Demand Expectations

Natural gas continued to rally on Wednesday due to expectations of increased power sector demand and concerns over a gas storage supply deficit ahead of the summer cooling season. Traders are worried about below-five-year-average storage levels and power sector demand due to early cooling demand during the injection season. The move is weather-related which means volatility. Weather-related demand is having an adverse effect on the current rate of storage injections.

Early Thursday at 0918 GMT, July Natural Gas futures are trading slightly better at $2.958, up $0.003 or +0.10%.

The latest National Weather Service forecasts showed above-average temperatures consolidating over most of the country through both the six-to-10-day and eight-to-14-day periods.

NatGasWeather.com says for the May 24 to May 30 period, “The central and southern U.S. will be very warm to hot with upper 80s to lower 100s, with the core of the heat over Texas. Next week will be warmer than normal across most of the country with highs of 70s and 80s north, and mid-80s to 100s over the southern U.S.” The Southeast is expected to experience temperatures within the normal range.

Forecast

Today’s U.S. Energy Information Administration (EIA) weekly storage report is expected to show a 93 Bcf injection for the week-ending May 18. This is down from the 106 Bcf build announced for the week-ended May 11, but up 4% from the 89 Bcf build averaged over the past five years, according to EIA data.

According to the most recent data from the EIA, national gas stocks are at 1.538 Bcf, down 24.6% from the five-year average of 2.039 Bcf.

The heat over major portions of the U.S. is expected to drive up demand in the coming weeks. This is expected to be supportive for prices.

A larger than forecast build should limit gains and may even trigger a sell-off. However, I don’t expect this to lead to a change in trend because of expectations of increased demand in the coming weeks. If there is a sell-off then look for buyers to come in on the dip.

A smaller than expected build should be enough to launch another surge in prices with the January 30 main top at $3.010 the next major upside target.