Natural Gas Price Fundamental Weekly Forecast – Bulls Hoping Cheap Prices Increase Demand, Tighten Balances

The plunge in prices could actually turn out to be good news for buyers. According to Richard Redash, head of global gas planning at S&P Global Platts, cheaper gas prices “will boost coal-to-gas switching in the power sector and tighten U.S. balances, limiting supply available” to increase storage levels.
James Hyerczyk
Natural Gas

Natural gas prices posted a steep decline last week in a move that may have confused traders. Extremely hot temperatures nearly covered the entire United States, but buyers remained scarce and support eroded.  Even the previous weekend’s passing of Hurricane Barry couldn’t give prices a boost as it led to lower demand.

Last week, September natural gas settled at $2.228, down $0.206 or -8.46%.

The problem for bullish natural gas traders is the heat is moving too quickly to feed lingering periods of high demand. It seems that every hot spell is being followed by a quick return to normal temperatures. Until this pattern changes, any rally is likely to be fueled by short-covering rather than aggressive buying. And the major short-sellers are just waiting to add to their bearish positions on any rally.

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported a slightly below-average 62 Bcf build into U.S. natural gas stocks during the week-ending July 12. This was on the low end of analyst forecasts.

Ahead of the EIA report, traders were looking for this week’s EIA weekly storage report to come in at about 72 Billion Cubic Feet (Bcf).

Bloomberg was looking for a median of 69 Bcf with guesses ranging from 64 Bcf to 83 Bcf. Reuters was calling for a 65 Bcf build with guesses ranging from 54 Bcf to 78 Bcf. The ICE EIA Financial Weekly Index futures contract settled Tuesday at 60 Bcf, while Natural Gas Intelligence experts predicted a 65 Bcf injection.

Last year, the EIA recorded a 46 Bcf injection for the period, which covers the week-ended July 12. The five-year average is a build of 63 Bcf.

As of July 12, Total Lower 48 working gas in underground storage stood at 2,533 Bcf, 291 Bcf (13.0%) above year-ago levels but 143 Bcf (minus 5.3%) below the five-year average, according to the EIA.

Short-Term Weather Outlook

According to NatGasWeather for July 22-28, “Weather systems with showers and cooling will arrive over the central, southern, and eastern US this week, easing highs into the 70s & 80s for much lighter national demand. Hot high pressure will shift over the West with highs of upper 80s to 100s, hottest over the Southwest into West Texas. Temperatures will warm across the southern US and Mid-Atlantic next weekend with highs of upper 80s to 90s gaining. Overall, national demand will rapidly drop from very high this past weekend to only moderate this week.”

Weekly Forecast

The plunge in prices could actually turn out to be good news for buyers. According to Richard Redash, head of global gas planning at S&P Global Platts, cheaper gas prices “will boost coal-to-gas switching in the power sector and tighten U.S. balances, limiting supply available” to increase storage levels.

According to Barron’s, “Platts Analytics argues that Henry Hub prices are ‘undervalued, relative to current Nymex futures,’ says Redash. ‘We think prices will pop back into the former $2.50 to $2.90 [million BTUs] range later this summer, with even greater upside risks awaiting in the winter.’”

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