Natural Gas Price Fundamental Weekly Forecast – Bearish Outlook Until LNG Demand Returns

Natural gas futures plunged last week with the selling driven by weather-driven demand concerns, flat liquefied natural gas (LNG) levels, and worries over containment. Meanwhile, renewed fears of demand destruction after President Trump’s positive COVID-19 test thrust the coronavirus pandemic back to the forefront, crushing ideas that an economic recovery was well on its way.

The selling was also fueled by an especially large government storage that encouraged long traders to liquidate positions and aggressive short-sellers to press prices lower.

Last week, December natural gas futures settled at $2.991, down $0.286 or -8.73%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 76 billion cubic feet (Bcf) for the week-ended September 25. This was in line with the forecast.

Total stocks now stand at 3.756 trillion cubic feet (Tcf), up 471 billion cubic feet from a year ago, and 405 billion cubic feet above the five-year average, the government said.

October Weather Outlook

The latest long-term forecasts showed warmth spreading into the East into the middle third of October. This results in weak demand via reduced heating degree days, but also with the West cooling, there are fewer cooling degree days, according to Bespoke Weather Services.

“We still feel the signals suggest the warmer pattern holding into the back half of the month, and likely into at least the start of November as well,” the forecaster said.

Bespoke also is watching the tropics more closely, as a system in the western Caribbean was attempting to develop. “This likely winds up in the southern Gulf of Mexico, though its ultimate track is unclear. At the least, it could impact LNG shipping lanes.”

Late Friday, the National Hurricane Center said Tropical Depression 25 was forecast to become a tropical storm over the weekend. The storm could move into the Gulf of Mexico over the next several days.

Weekly Forecast

The December natural gas weekly chart indicates there could be two areas of interest for bullish traders this week, $3.004 – $2.917 and $2.838 – $2.712.

Fundamentally, the weather is not expected to be a big help this week, but traders are likely to be more interested in liquefied natural gas anyway. At this time, the demand picture is unclear, which could be bearish for the November futures contract, but at some time in the near future, the outlook for increased demand could provide the support for the December futures contract.

“While the weather picture isn’t great for bulls, contracts beyond November are at a growing risk for a snap back higher,” Bespoke said. “It’s just a matter of when the market decides to let the November contract completely disconnect from the rest of the curve, the timing of which is difficult to pinpoint.”

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