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Natural Gas Price Fundamental Daily Forecast – Traders Anticipating 58 Bcf EIA Storage Build

By:
James Hyerczyk
Published: Nov 8, 2018, 06:51 UTC

A lower than expected build will be bullish for prices, but the primary focus for traders is the weather forecast. With the winter heating season beginning with a deficit, the forecast for the upcoming cold pattern has made any further recovery for low storage inventories unlikely. It’s also erasing from memory any forecasts for a delayed winter. An earlier cold snap can be more bullish than a later cold system so storage is vulnerable at this time.

Natural Gas

Natural gas futures are trading lower early Thursday, but inside yesterday’s range as investors prepare for the release of the U.S. Energy Information Administration’s (EIA) weekly storage report. This report and any weather updates will determine whether traders take out this week’s high at $3.581, or try to fill in the gap created by Monday’s opening.

At 0605 GMT, December Natural Gas futures are trading $3.515, down $0.040 or -1.13%.

After surging Monday and inching higher on Tuesday, natural gas futures have been moving mostly sideways as weather forecasts offered mixed signals as to what to expect from heating demand after the first serious cold snap of the season passes on about November 22.

According to Natural Gas Intelligence, “In the spot market, prices in the Midwest and East remained strong with cold temperatures in the forecast, while higher heating demand wreaked havoc given constraints in the Pacific Northwest; the NGI Spot Gas National Average gained 5.5 cents to $3.380/MMBtu.

Short-Term Weather Outlook

According to NatGasWeather, “As the market tries to get a read on what will follow the cold pattern forecast for this week and next, all weather models trended colder for the November 17-22 period Wednesday, save for the European model. The Global Forecast System (GFS) remained the coldest in showing wintry temperatures lingering in the Great Lakes and East.”

“The European model continues to see a milder pattern setting up across most of the country November 17-22,” the forecaster said. “This makes the overnight data very important to see if the GFS backs off…to better match the European model or if the European model trends colder to fall better in line with the already quite cold GFS.”

U.S. Energy Information Administration Weekly Report Estimates

Traders are anticipating a 58 Bcf build into storage for the week-ended November 2, with predictions ranging from 53 Bcf to 65 Bcf. This according to a Reuters survey. Bloomberg is calling for a median build of 59 Bcf, with a range of 53 Bcf to 65 Bcf. The Intercontinental Exchange EIA financial weekly index futures settled Tuesday at 61 Bcf.

In 2017, the EIA recorded a 22 Bcf build for the period, and the five-year average is an injection of 48 Bcf.

Forecast

A lower than expected build will be bullish for prices, but the primary focus for traders is the weather forecast. With the winter heating season beginning with a deficit, the forecast for the upcoming cold pattern has made any further recovery for low storage inventories unlikely. It’s also erasing from memory any forecasts for a delayed winter. An earlier cold snap can be more bullish than a later cold system so storage is vulnerable at this time.

Speculators should note that prices rose sharply this week because the shift in the weather pattern caught the short-sellers by surprise. The weather continues to drive volatility, but it works both ways. A bigger than expected injection this week combined with a reversal in the weather pattern will keep a lid on prices and probably drive them back to last week’s levels fairly quickly.

Additionally, the longer-term weather models continue to be inconsistent. As late as last Friday, traders were banking on a moderate winter. This is still possible.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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