Natural Gas Price Fundamental Daily Forecast – Traders Pricing in 104 Bcf EIA Storage Build

Natural gas is trading flat shortly ahead of the regular session opening and the release of the government’s weekly storage report at 14:30 GMT.

On Wednesday, prices surged to their highest level since April 16 before hitting a wall of resistance and reversing sharply to the downside. Yesterday’s sell-off was fueled by a combination of technical and fundamental factors.

Technically, the market was trading inside a short-term retracement zone at $2.679 to $2.713. This zone tends to be attractive to profit-takers and new short-sellers. It was just a matter of time before strong buyers emerged to drive the market through $2.713, or sellers returned to drive the market back under $2.679. Technical traders were just waiting for the right combination of fundamental factors to make their next move.

Fundamentally, traders were spooked by a combination of lower cooling demand and estimates of larger-than-average storage builds in this week’s government storage report.

At 11:40 GMT, July natural gas is trading $2.635, up $0.001 or +0.04%.

U.S. Energy Information Administration Weekly Storage Report

This week’s estimates call for a low-triple-digit build for the week ended May 10.

Bloomberg analysts are predicting a median estimate of 104 Bcf with guesses ranging from 93 Bcf to 125 Bcf. Reuters analysts are looking for a consensus build of 104 Bcf with estimates ranging from 93 Bcf to 125 Bcf. The Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at 105 Bcf and Natural Gas Intelligence’s model is look for an injection of 102 Bcf.

Last year, the EIA reported a 104 Bcf increase for the period. The five-year average build is 89 Bcf.

Short-Term Weather Outlook

According to NatGasWeather for May 15 to May 21, “The Great Lakes and Northeast will continue to warm the next several days into the upper 60s to lower 80s for much lighter demand. However, temperatures also continue getting hotter across Texas, the South, and Southeast as high pressure strengthens with highs of upper 80’s to 90’s increasing demand for cooling. The West and Plains will see numerous weather systems track through with heavy showers and thunderstorms but with mixed results as the SW cools into the comfortable 70s and 80s, although chilly across the NW w/50s and 60s. Overall, demand will be moderate to low.”

Radiant Solutions pointed out hotter trends for the southern United States in its latest six- to 10-day forecast Wednesday, with warmer conditions continuing for the East in the 11-15 day period.

Daily Forecast

Fundamentally, the direction of the July natural gas futures contract will be determined by the size of the build in the EIA storage report. Look for lower prices if the build comes in over 104 Bcf. The size of any sell-off will be determined by how much the actual number exceeds our estimate with 125 Bcf the high end of the range.

Technically, the key area to watch is $2.625 to $2.607. Trader reaction to this zone will ultimately be determined by trader reaction to this zone.

If the build comes in well below 104 Bcf then prices may spike up to $2.679 to $2.713.

An extremely large build and a break under $2.607 will put the market in a weak position with $2.55 to $2.534 the next likely targets.

A neutral report will likely produce a rangebound trade with $2.625 the lower level of the range, and $2.679 the upper level.