Natural Gas Price Fundamental Weekly Forecast – Bullish Traders Waiting for Confirmation of Late May Heat Wave

Natural gas futures managed to eke out a small gain last week after hitting its highest level since April 16. It wasn’t much of a gain, but the chart pattern showed buyers were willing to come in on the dips, while showing some reluctance about buying strength.

The chart pattern suggests general uncertainty with speculative buyers trying to price in the prospect of early summer demand growth, and the bearish traders responding to pressure from recent bearish storage builds. As Bespoke Weather Services put it, “Prices were up and down during the week, with the market stuck between bullish weather trends and bearish fundamentals.”

For the week, July natural gas settled at $2.664, up $0.009 or +0.34%.

Bespoke also said the weather pattern has turned “increasing bullish,” indicating “a lot more heat in the back half of May that what we were looking at in the forecasts a week ago.” However, the weather services firm continues to emphasize that a “bearish fundamental picture” is keeping a lid on prices. Furthermore, Bespoke said the latest Energy Information Administration (EIA) storage report for the week-ending May 10 “did confirm some tightening of balances, but they still remain too loose to allow prices to continue moving up….”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on Thursday a 106 Bcf injection for the week-ending May 10 into U.S. natural gas storage. This was on-target with pre-report estimates. Last year, the EIA reported a 104 Bcf build and the five-year average is 89 Bcf. Traders viewed the report as neutral.

Short-Term Weather Outlook

According to NatGasWeather for May 19-May 23, “The Great Lakes, Ohio Valley, and Northeast will be mostly comfortable with highs of 60s to lower 80s for light demand. However, temperatures will be very warm to hot from Texas to the Mid-Atlantic Coast as high pressure strengthens to produce highs of upper 80s to lower 90s. The West and Plains will see numerous weather systems track through with heavy showers and thunderstorms but with mixed results as the SW cools into the comfortable 70s and 80s but a bit chilly across the NW w/50s and 60s. The South and Southeast will be hotter late next week with highs of 90s for strong cooling demand. Overall, demand will be moderate to low.”

Weekly Forecast

Prices continued to press higher last week, but the tentative action suggests investors are still a little nervous about buying strength ahead of a series of potential triple-digit supply builds. Nonetheless, there has been enough speculation that hot weather will return sooner-than-expected, which could slow down the pace of the storage increases.

The chart pattern suggests that investors will have two choices this week. If the buying is strong enough to take out $2.700 then this could create enough upside momentum to challenge a key 50% level at $2.762 over the near-term. This is likely to take place if the weather turn up the heat.

If the forecasts shift back to more seasonal temperatures then sellers are likely to push prices back to $2.617 to $2.597. At this point, it will be up to aggressive counter-trend buyers to step in and stop the price slide. They are going to be betting on the return of hotter temperatures.

Natural Gas Intelligence reported that Bespoke Weather Services said, the upcoming week could provide a “very important measure of the fundamentals side given the heat that is on the way,” the firm added. “We do suspect that the burns will show improvement as the heat arrives,” but sentiment remained neutral as of Friday “because the market has been showing that it wants to see confirmation in the data before putting together a rally from these levels.”

Their assessments seems to reaffirm what the chart pattern is showing. If heat is kept in the forecast then investors will have to decide to buy strength, or the dip.