Natural Gas Price Fundamental Weekly Forecast – As Storms Brew, Containment Concerns Move to Forefront

Natural gas futures finished the week lower amid demand uncertainty and forecasts calling for cooler temperatures over the near-term. It was an unusual week with intense heat on the West Coast from California to Oregon contributing to massive wild fires in both states, while temperatures dropped to winter-line levels across the Rockies. Meanwhile, the cold in the Rockies inched toward the East, bringing comfortable temperatures to key demand areas, reducing cooling demand.

Last week, December natural gas settled at $3.181, down $0.095 or -2.90%.

Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 70 billion cubic feet for the week-ended September 4. That was higher than the increase of 64 Bcf forecast by analysts polled by S&P Global Platts, but inside the range of guesses.

Total stocks now stand at 3.525 trillion cubic feet, up 528 Bcf from a year ago, and 409 Bcf above the five-year average, the government said.

In a separate report, the EIA forecasted that inventories would approach 4.0 Tcf by the end of October, 6% above the five-year average and a level that would present containment challenges.

LNG Demand Updates

Feed gas operations resumed at the Sabine Pass liquefied natural gas (LNG) facility but the pace has been slow, raising concerns about storage overflows.

“Storage remains at record levels in some regions,” Bespoke Weather Services said, “so the higher LNG volumes will need to sustain themselves to steer us clear of a containment scenario, something that gets even dicey if weather continues to look tame.”

Weekly Weather Outlook

Maxar’s Weather Desk said the week-ahead forecast was undergoing “cooler changes across the eastern half of the United States, with the largest changes focused in the Midcontinent,” potentially resulting in below-average temperatures overall.

While summer heat continued in California and the Southwest, wildfires raging across large areas of the West Coast on Friday showed “no signs of slowing,” Maxar noted, and “wildfire smoke could remain a limiting factor for temperatures.”

Weekly Forecast

The big concern this week will be the strong possibility of containment issues. If storage continues to grow then this will pressure prices since producers may start to dump natural gas in the spot market at below-market prices.

Cash prices could remain under pressure the rest of September, NatGasWeather said, as fall temperatures settle in across much of the Lower 48, leaving many markets in a limbo of sorts where demand is light for cooling and heating needs are still a few weeks away.

Over the second half of September, the forecaster said, “widespread ideal highs of 70s and 80s rule much of the country for light national demand. There will still be cooler bouts at times across the northern United States, with highs of 50s and 60s, and locally hotter conditions” over the southern part of the country, with highs in the 90s. “But overall, a rather bearish pattern…It would take much hotter or colder trends to flip weather sentiment bullish.”

As far as the tropical storms or possible hurricanes are concerned, they’ll only be a factor if they cause damage in the Gulf of Mexico areas. If production in the Gulf shuts down again then this will lead to another back up in LNG demand, leading to higher supply and lower prices.

For a look at all of today’s economic events, check out our economic calendar.