Natural Gas Price Fundamental Daily Forecast – Testing Fresh 20-Month Low on Gap Lower Opening

Natural gas futures gapped lower early Monday after weekend forecasts indicated less-cold during early February, disappointing aggressive counter-trend traders who bought on Friday in anticipation of more bullish news at the start of the week.

At 08:03 GMT, March natural gas futures are trading $2.655, down $0.194 or -6.81%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $9.82, up $0.20 or +2.03%.

Futures fell about 2% to a fresh 20-month low on Friday ahead of expiration of the front-month and a growing belief that there is more than enough gas in storage for the rest of winter. A short-covering rally after the expiration helped the March futures contract edge higher into the close.

Short-Term Weather Outlook

The weather is expected to turn from warmer than normal now to colder than normal from Jan. 20 to Feb. 6 before turning warmer than normal again through mid-February. But this news has already been priced into the market since traders tend to look into the future 10-15 days.

Today’s early bearish price action suggests that perhaps the forecast shifted over the weekend and now traders expect warmer temperatures to return before Feb. 6. Or, at some point in the 10-15 day forecast, there will be less-cold then previously predicted.

Nonetheless, the price action suggests that traders believe heating demand will remain mostly low as the weather returns to warmer than normal. This will allow utilities to continue to pull less gas from storage for at least a fourth or even fifth week in a row.

Government Stockpiles High for This Time of Year

Gas stockpiles were currently about 5% above the five-year (2018-2022) average and are on track to rise to 7% above normal in next week’s government storage report.

Last Thursday, the Energy Information Administration (EIA) released its natural gas inventory report, showing a net decrease of 91 Bcf as of January 20, 2023.

Working gas in storage was 2,729 Bcf as of Friday, January 20, 2023, according to EIA estimates. This represents a net decrease of 91 Bcf from the previous week. Stocks were 107 Bcf less than last year at this time and 128 Bcf above the five-year average of 2,601 Bcf.

Short-Term Outlook

With the weather not cooperating for the counter-trend bulls, all eyes from those still trying to pick a bottom will be on any developments regarding the return of Liquefied Natural Gas (LNG) demand.

The biggest wildcard in the gas market remains when Freeport LNG’s liquefied natural gas (LNG) export plant in Texas will exit a seven-month outage caused by a fire in June 2022.

Speculators are watching for any news about Freeport, the second biggest U.S. LNG export plant, because traders expect prices to jump once the facility starts pulling in big amounts of gas, boosting demand for the fuel.

The plant can pull in about 2.1 billion cubic feet per day (bcfd) of gas and turn it into LNG. That is about 2% of what U.S. gas producers pull from the ground each day.

With no prolonged cold system in the forecast, it seems that a jumpstart from the reopening of Freeport LNG may be the only potentially bullish factor on the board right now.