Natural Gas Price Fundamental Daily Forecast – Weaker on Profit-Taking; Underpinned by Low Supply Concerns

Natural gas futures started slightly better on Friday but prices drifted lower throughout the session, leading to a technical closing price reversal top. There weren’t any major changes to the fundamentals so most traders chalked up the loss to profit-taking, following a nearly 50 cent rise over Wednesday and Thursday.

On Friday, December natural gas futures settled at $5.067, down $0.091 or -1.76%. This was down from an intraday high of $5.184.

Despite the small setback, the bullish tone remains fully entrenched with weak production due to the hurricane-related shut ins and lingering concerns over the tight storage balances ahead of the start of the winter heating season.

Production Update

According to the Bureau of Safety and Environmental Enforcement (BSEE), as of Friday, nearly three-quarters of the natural gas produced in the Gulf of Mexico, 1.68 Bcf/d, remained offline.

Based on data as of midday on Friday, 65 oil and gas production platforms still were unmanned, which was more than 11%, BSEE said. Personnel also had not been returned to three moored rigs, or 28% working in the offshore. In addition, two unmoored rigs, or 13%, remained off location from where they were positioned before the hurricane, Natural Gas Intelligence (NGI) reported.

NGI went on to say that output was already modest ahead of Ida, with production averaging about 92 Bcf/d over the summer months – below the levels prior to the coronavirus pandemic and roughly 1 Bcf/d below what many analysts have said is needed to align supply with demand before winter.

Strong LNG Demand, Low Stockpiles Equals Upward Pressure on Prices.

LNG exports continue to soak up excess supply and feed imbalance worries, NGI wrote. LNG feed gas volumes topped 11 Bcf on Friday – within striking distance of record levels.

“The major European indices hit post-2008 and then all-time highs multiple times throughout the summer – even surpassing Asian prices on a handful of days,” said RBN Energy LLC analyst Lindsay Schneider.

“At the same time, Asian prices have set all-time seasonal records and are now sitting just below the previous single-day high settle from this past January. Usually, as the weather cools heading into fall, so do prices, but that’s unlikely this year as the European gas storage inventory is at the lowest level for this time of year than we’ve seen in recent history, and the time to replenish stocks for the winter is rapidly running out.”

With output failing to stay astride because of lingering pandemic apprehension among oil producers, worries are mounting that underground stockpiles of gas needed to fuel heading needs during the winter season may fall short. This has placed upward pressure on prices, NGI wrote.