Natural Gas Price Fundamental Daily Forecast – Winter Strip Weakness Indicates Potential Shift in Sentiment

Natural gas futures are trading lower early Monday, continuing the price slide which began last Thursday, following the release of the U.S. government’s weekly storage report.

At 0855 GMT, October natural gas futures are trading $2.927, down $0.022 or -0.75%.

Traders are paying close attention to the supply/demand situation as we approach the end of the summer cooling season. An increase in production and a drop in demand will be the worst scenario for bullish natural gas futures traders.

According to S&P Global Platts Analytics data, U.S. demand fell 3.1 Bcf/d to 70.8 Bcf/d as demand reached its lowest levels in five days. Most of the decline was due to the decrease in power burn totals, as the power burn fell 2.7 Bcf/d to 36.8 Bcf/d on Friday.

Adding to the bearish sentiment was the continuing strong U.S. dry gas production, which remained above 80 Bcf/d for the seventh consecutive day as production fell 600 MMcf/d to 80.6 Bcf/d on Friday, according to Platts Analytics data.

To recap last week’s U.S. Energy Information Administration’s weekly storage report, domestic supplies of natural-gas stockpiles rose by 46 billion cubic feet for the week-ended August 3. Traders were looking for a storage build of 43 to 45 Bcf.

Total stocks now stand at 2.354 trillion cubic feet, down 671 billion cubic feet from a year ago and 572 billion below the five-year average, the government said.

Forecast

Today, investors will react to fresh weather and production reports. If the weather forecasts continue to call for cooler temperatures over the next 10-14 days and production holds near the 80 Bcf/d level then prices are likely to fall.

Any drop in demand will lead to profit-taking and fresh hedging pressure, which will likely signal the return of the same bearish sentiment that drove prices lower this summer.

In what could be another sign that the October futures contract may have topped last week, the NYMEX winter strip, or the November to March futures contracts retreated late last week, which indicates investors are starting to believe that producers will be able to shrink the supply deficit.

Additionally, the early estimate for Thursday’s EIA report calls for a 29 Bcf build for the week-ending August 10, well below the five-year average of a 56 Bcf increase for the same week.

Technically, if daily chart indicates that if the selling pressure continues, the October natural gas futures market is likely to break into $2.857 to $2.832 before buyers are likely to return.