Natural Gas Price Fundamental Weekly Forecast – Balances Tight, but Weather Not Cold Enough to Sustain Rally

Natural gas futures held steady last week and even closed higher after hitting a multi-year low. The market was underpinned by Thursday’s much larger-than-expected government storage report, which supported the notion of tightening supply/demand balances. However, gains remained capped by the latest weather models that showed nearly no chance of a favorable cold pattern for the lingering bulls.

Natural Gas Intelligence (NGI) also reported that spot gas prices also hardly budged as warming temperatures in the south and southeastern United States combined with plunging temperatures farther east. The NGI Spot Gas National Average ultimately climbed a half-cent to $1.765.

Last week, March natural gas settled at $1.858, up $0.017 or +0.92%.

In other news, NGI reports there are other headwinds developing, at least in terms of sentiment, according to Mobius Risk Group. Uncertainty regarding the demand for LNG shipments in China continues to grow and although China has not taken a U.S. cargo since last spring due to trade tensions between the two countries, any long-term hit to demand could make the current global gas glut even worse.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas fell by 137 billion cubic feet (Bcf) for the week-ended January 31. According to Natural Gas Intelligence, estimates were pointing to a withdrawal in the upper 120s Bcf to lower 130s for this week’s EIA report.

Bloomberg was looking for a range of 122 Bcf to 134 Bcf, with a median pull of 129 Bcf. Reuters forecast a median draw of 131 Bcf. The Wall Street Journal predicted a draw as low as 109 Bcf, but its average was 127 Bcf. Meanwhile, the Natural Gas Intelligence model predicted a 125 Bcf withdrawal.

In 2019, the EIA recorded a 228 Bcf withdrawal for the similar period, while the five-year average withdrawal is 143 Bcf.

Total stocks now stand at 2.609 trillion cubic feet, up 615 Bcf from a year ago, and 199 Bcf above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for February 7 to February 13, “A strong weather system will track through East today with areas of rain and snow, although with only modest cooling. A reinforcing cold shot will follow across the Northeast overnight and Saturday for a surge in demand as lows reach the 10s & 20s. Additional weather systems are expected into the US next week, but coldest over the lower population states of the Rockies and Plains. The southern US will be cool today to start in the wake of yesterday’s cold front, but now warming back into the 60s and 70s. Overall, light versus normal national demand continues through mid-next week, then increasing.

Weekly Forecast

The trend is down on the weekly chart. However, last week’s technical reversal bottom could be a bottoming signal. A trade through $1.906 will confirm the chart pattern. This could trigger a short-covering rally. Traders could get a little more excited about the upside potential if the gap at $1.963 to $1.977 is filled.

Fundamentally, the market may be ripe for a short-covering rally according to the chart pattern, furthermore, the tightening supply/demand balance is also leaning to the upside. However, this market is going to have a hard time sustaining any rally without a lingering cold snap.

Time is running out for the bulls. We may not see a decent rally until the last of the bullish longs is taken out of the market.