Natural Gas Price Fundamental Weekly Forecast – Bullish Tone Fueled by ‘Hefty Drop’ in Nat Gas Rigs

Natural gas prices edged higher last week as traders shrugged off a bearish government storage report, choosing instead to focus on the rapid pace of falling production. According to Natural Gas Intelligence (NGI), with the relaxing of coronavirus-related shutdowns and stay-at-home orders not yet known, the supply side of the equation is starting to come into focus.

Tudor, Pickering, Holt & Co. (TPH) analysts said data showed late last week that total U.S. gas production was down around 1.5 Bcf/d, “which could indicate the first signs of a break in U.S. gas supply.”

Last week, June natural gas futures settled at $1.903, up $0.040 or +2.15%.

U.S. Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 73 billion cubic feet for the week-ended April 10. That was generally in line with average expectations for an increase of 71 billion cubic feet, according to a survey of analysts.

Last year, the EIA recorded a 73 Bcf build for the similar week, and the five-year average is a build of 27 Bcf.

Total stocks now stand at 2.097 trillion cubic feet, up 876 billion cubic feet from a year ago, and 370 billion cubic feet above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for April 17 – April 23, “Cool shots will continue across the central and northern US into early next week with chilly lows of 20s and 30s. Texas and the South will warm back into the 70s and 80s into the foreseeable future, locally a touch hot into the 90s. The West will be mostly comfortable with highs of 50s to 80s for light demand. Warmer than normal conditions will build across all but the northeastern US mid-next week with national demand easing to lighter levels.”

Bullish Bets Increase

Money managers continued to increase their bullish natural gas bets, boosting their net-long positions by 23,624 to 95,673, according to the latest Commodities Futures Trading Commission data. The net-long position was the most bullish in almost a year, while the 324,569 long-only positions was the highest in more than a year.

Weekly Forecast

Last week’s price action and higher close indicates that traders were already focusing on other factors than demand – namely lower production.

On the demand side, the market is still likely to struggle with the impact of COVID-19 although the combination of warm weather in some parts of the country and lockdowns could lead to more electrical demand due to increased air conditioning usage.

However, the biggest bullish factor that could send prices soaring this week is the drop in the number of rigs.

The latest data from Baker Hughes showed “another massive drop” in oil rigs by 73 and a “hefty drop” of seven gas rigs, with the total number of rigs now nearly 500 below a year-ago total of 1,012, according to NatGasWeather.

“This suggests a significant decrease in natural gas production is in the cards,” NatGasWeather said. “But when will it be strong to counter strong demand losses due to COVID-19?”