Natural Gas Price Fundamental Daily Forecast – Vulnerable to End-of-the-Month Profit-Taking, Position-Squaring

Natural gas futures gapped lower early Monday before oversold conditions encouraged short-sellers to take profits after a prolonged move down in terms of price and time. The rally could gain traction because end of the month trading often leads to wicked price action. So don’t be surprised if there is a reversal top or a strong short-covering rally.

At 0717 GMT, December Natural Gas futures are trading $2.969, up 0.005 or +0.17%. Earlier in the session, the market traded down to $2.936, its lowest level since the futures contract traded there on March 24, 2016.

To recap, data from the U.S. Energy Information Administration last Thursday showed that domestic supplies of natural gas rose by 64 billion cubic feet for the week-ended October 20. Traders were looking for a build of 66 billion cubic feet.

Total stocks now stand at 3.710 trillion cubic feet, down 189 billion cubic feet from a year ago, and 46 billion cubic feet below the five-year average, the government said.

Forecast

The fundamentals are bearish but today’s early price action suggests oversold technical conditions may be controlling the market today. We could see aggressive end-of-the month profit-taking and position-squaring that may have nothing to do with the mid to longer-term outlook.

Thomson Reuters is predicting homes and businesses are likely to consumer less gas this week than previously forecast. U.S. gas consumption is now projected to average 80.4 billion cubic feet this week, down from an earlier forecast of 80.9 bcfd.

Next week, demand is expected to edge up to 81.0 bcfd as the weather turns seasonally colder.

Looking ahead to Thursday’s EIA storage report, utilities likely added a near normal 59 billion cubic feet of gas into storage in the week to October 27, which would leave the amount of fuel in inventory about 1.2 percent below the five-year average for this time of year at around 3.8 trillion cubic feet.

That compares with an increase of 56 bcf during the same week a year earlier and the five-year average build of 60 bcf for the period.

Finally, according to natgasweather.com for the period October 30 to November 5, “Several weather systems will impact the U.S. to open the week. A chilly, but not cold, system is bringing rain and gusty winds to the Northeast with lows dropping into the 30s and 40s.”

“A colder system will push through the central U.S. the next few days with lows of teens and 20s, including 30s deep into North Texas and the South.”

“The West will be mild to warm with highs of 60s to 80s, but cooling late in the week as Pacific systems arrive.”

“Overall, demand will be high through Thursday”.

The longer-term fundamentals are bearish, but be prepared for volatility due to end-of-the-month position-squaring and profit-taking due to oversold technical conditions.