Natural Gas Price Fundamental Weekly Forecast – Bullish Tone as Utilities Struggle to Narrow Storage Deficit

Natural gas futures closed sharply higher last week after breaking out over a key technical resistance zone and the psychological $8.00 level. The catalysts driving the market’s strength were a bullish government storage report and new forecasts calling for even hotter-than-previously forecast temperatures.

Last week, September natural gas futures settled at $8.195, up $1.269 or +18.32%. The United States Natural Gas Fund ETF (UNG) finished a $28.30, up $4.06 or +14.35%.

EIA Releases Bullish Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported on Thursday that domestic natural gas supplies rose by 32 billion cubic feet for the week ended July 15. That compared to an average forecast for an increase of 44 billion cubic feet (Bcf) from analysts polled by S&P Global Commodity Insights.

Ahead of the report, Natural Gas Intelligence (NGI) reported a Bloomberg poll showed a median 43 Bcf injection based on 14 estimates ranging from 34 Bcf to 59 Bcf. A Reuters’ survey produced injection estimates that spanned 36 Bcf to 59 Bcf. It landed at a median of 48 Bcf. A Wall Street Journal poll found an average injection expectation of 48 Bcf and generated a range of 39 Bcf to 59 Bcf.

Total working gas stocks in storage stand at 2.401 trillion cubic feet (Tcf), down 270 billion Bcf from a year ago and 328 billion Bcf below the five-year average, the government said.

Weather Expected to Remain Supportive

Bespoke Weather Services on Friday said widespread high temperatures in the 90s and 100s put this month on track to be one of the three hottest Julys on record. Now, the latest outlooks shifted hotter and put next month on a path to become one of the five hottest Augusts in the firm’s data set.

NatGasWeather painted a similar picture. “The longer a hotter-than-normal U.S. pattern lasts, the less damage the Freeport outage will ultimately inflict,” the firm said. “So far it hasn’t been much, with deficits not improving since it went offline, and even potentially increasing the next few weeks on recent and coming heat.”

Weekly Forecast

Technically speaking, look for the strong upside momentum to continue next week as long as the September natural gas futures contract can hold above $7.965. The weekly chart shows there is plenty of room to the upside with $9.598 the next major target. A sustained move under $7.461 will be a sign of weakness, however.

Fundamentally, despite the Freeport LNG outage – caused by a June fire – supply worries are not easing as expected, due to the prolonged heat. Looking ahead, utilities are expected to continue to chew through the added supply and are likely to keep on struggling to narrow the storage deficit to the five-year average.

Furthermore, analysts at the Schork Report said the government storage numbers came in 24% below the most conservative forecast in major polls. After halfway through the storage refill season, they said, the market has covered only 45% of last winter’s gas deliveries.

“This is not good enough and the market agrees with us,” the Schork analysts said, referring to the prompt month trading above $8.” This is the clearest possible telltale of the market’s angst regarding the adequacy of this summer’s refill pace.”