Natural Gas Price Fundamental Weekly Forecast – Cool Weather May Delay Start of Series of Triple-Digit Injections

Natural gas futures finished higher last week, reversing an earlier move that drove prices to their lowest level since February 2016. The price action was primarily driven by weather models which showed an expected cold snap in the northern United States and increasing heat for the southern states. Both events indicate the possibility of higher near-term demand. Higher spot gas prices also underpinned prices, catching short-sellers by surprise.

Last week, June natural gas finished at $2.580, up $0.045 or +1.78%.

According to Natural Gas Intelligence, “Recent forecasts have rejuvenated natural gas markets that only days ago had reached lows not seen in years. Demand additions, in the form of both heating degree days (HDD) and cooling degree days (CDD), had been showing up in weather models since earlier in the week, although it wasn’t until Thursday when traders finally seemed to take notice.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 92 billion cubic feet for the week-ended April 19. Traders were looking for a build of about 90 Bcf.

Total stocks now stand at 1.339 trillion cubic feet, up 55 Bcf from a year ago, but 369 billion below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for April 27 to May 2, “A stronger cool front will follow behind the weekend system across the central and northern US this weekend where lows will drop into the 20s to 40s. A reinforcing cool shot will follow across the northern US early this week to keep conditions just a touch chilly. The western and southern US will be mild to warm with highs of 60s to 80s, locally 90s. The Great Lakes and East will warm mid-next week with highs of upper 60s and 70s for lighter demand. Overall, national demand will be low through Friday, then moderate.”

Weekly Forecast

The short-covering rally on the daily chart is impressive, but likely to be short-lived. On the weekly chart, buyers were able to produce a potentially bullish closing price reversal bottom. If there is a follow-through rally then we could see a 2 to 3 week correction. That too, is likely to be met by fresh shorting pressure as the weather is likely to improve in May enough to lead to a series of triple-digit injections.

A series of triple-digit injections has been forecast for weeks, however, the onset of cooler temperatures may be delaying this from happening.

Short-term, we’re likely to see a move into $2.623 to $2.657. This could stop the rally early. However, if $2.657 is taken out then this will indicate the buying is getting stronger. This could trigger a further rally into $2.709 to $2.764.