Natural Gas Price Fundamental Weekly Forecast – Bulls Hoping Heat Outweighs Virus-Related Demand Concerns

Natural gas futures finished higher last week with most of the gains driven by a two-day, weather-related surge on July 6 and July 7. Worries over a second-wave of demand destruction from a surge in COVID-19 infections combined with a neutral government storage report and relief from widespread hot temperatures weighed on prices later in the week.

Last week, August natural gas futures settled at $1.805, up $0.07 or 4.09%.

Nonetheless, there is still hope for the bulls as expectations for continued extreme summer heat and robust cooling demand continued to outweigh worries over a weak outlook for liquefied natural gas and storage concerns.

Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 56 billion cubic feet for the week-ended July 3. That was mostly in line with the average increase of 55 billion cubic feet forecast by analysts polled by S&P Global Platts.

Total stocks now stand at 3.133 trillion cubic feet, up 685 billion cubic feet from a year ago, and 454 billion cubic feet above the five-year average, the government said.

Ahead of the report NatGasWeather said, “For today’s EIA weekly storage report, survey averages favor a build of +56-58 Bcf, slightly smaller than the 5-year average of +68 Bcf. It was hotter than normal over much of the eastern 2/3 of the U.S., while cooler than normal over most of the West.”

LNG Worries Linked to Rising COVID-19 Cases

Kevin Dobbs at Natural Gas Intelligence wrote Friday, “At issue: LNG worries fed by continued spread of the coronavirus and its adverse impact on economic activity and industrial energy demand. The pandemic depleted European and Asian demand for U.S. LNG exports in the spring months as the virus first gripped the globe. A new surge in cases in late June and this month infused a second dose of uncertainty and clouded the outlook for an LNG recovery.”

Short-Term Weather Outlook

According to NatGasWeather for July 13 -19, Very hot upper high pressure will stretch from California to Texas with highs of 100-110s, while also hot across the South and Southeast with mid-90s. One weather system will exit the Northeast Monday, while a new one arrives into the Northern Plains/Upper Midwest w/highs of 70s to low 80s. Hotter conditions will arrive across the Great Lakes and Northeast late week with highs of upper 80s to mid-90s for stronger national demand. Overall, national demand will be moderate-high increasing to high later in the week.”

Weekly Forecast

Technically, the main trend is down on the weekly chart, but things could get interesting if aggressive counter-trend buyers can successfully defend the $1.721 to $1.672 retracement zone. However, even if there is a rally through last week’s high at $1.924, new short-sellers are likely to jump at the opportunity to reestablish positions inside the retracement zone at $1.982 to $2.092.

EBW Analytics said, over the coming two to three weeks, “When almost all generating capacity will be required to meet load” if forecasts prove accurate, “suggests that natural gas power sector burn is likely to reach new highs” and could prove a catalyst for gas futures.

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