Natural Gas Price Fundamental Weekly Forecast – China Export Deal Bullish News

Natural Gas futures closed sharply higher last week as investors stepped away from watching the weather to reacting to reports of lower production and rising exports.

July natural gas futures settled the week at $3.498, up 0.148 or +4.42%.

The bigger news may be that the market is pressing the high for the year at $3.575 and in a position to take out the December 29, 2016 top at $3.624. This is a highly unusual move for this time of year because traders are typically watching and reacting to temperatures that are not hot or cold enough to dramatically affect demand. Because of this, the market is usually rangebound or drifting lower as investors prepare for the start of the summer cooling season.

Since the start of the year, U.S. production has remained at its lowest level in three years, averaging just 70.8 billion cubic feet per day during the past 30 days. That compares with 72.0 Bcf during the same period in 2016, 73.4 Bcf in 2015 and 67.9 Bcf in 2014.

In addition to the lower production, bullish traders have also been encouraged by stronger exports, particularly to Mexico. Data from the U.S. Energy Information Administration indicates that U.S. exports were expected to reach 7.3 Bcf the week-ended May 12, up 18 percent from a year earlier.

By some accounts, analysts are predicting that a mild summer combined with stagnant output and rising exports, may increase inventories by only 1.6 trillion cubic feet during the April – October injection season. This would be much lower than the five-year average of 2.1 Tcf. And this would be bullish news for natural gas later in the year.

Forecast

I ended last week by saying it’s too early for a rally. That would be a valid conclusion if you follow the seasonal patterns like I do, but I have to change my mind with the news that broke on Friday.

On Friday, the Trump administration said it had agreed with China on a broad range of measures aimed at improving the access of American natural-gas exporters among other industries.

This should be big news for bullish natural gas investors because increased exports means more demand.  After pouring over the data and the chart pattern, I have to believe that this news was the driving force behind the rallies on Thursday and Friday and not just a smaller-than-expected inventory build. At least, it makes sense to me.

We could still see some stops in starts over the near-term, but I think the table has been set for higher markets this year. It may even make sense to get away from the nearby contract and focus your trading on the deferred contracts especially if you share a long-term view of the market.

One problem that could arise is with the hedge fund and money managers. They are holding extremely large positions and if you’ve watched the crude oil market this year, this is not always a good thing. So be prepared for the possibility of a sharp sell-off at times because of overbought conditions. Sometimes all it takes is a little bearish news to get the Herd to overreact to the downside.

Overall, I’m longer-term bull and likely to get even more bullish if we get a summer like last year.