Natural Gas Price Fundamental Weekly Forecast – Cooling Demand, Strong LNG Export Volumes Providing Support

Natural gas futures finished marginally higher last week with volatility driven by a bearish government storage report and increased expectations for national cooling demand in June. Despite these two offsetting events, strong liquefied natural gas (LNG) export volumes continued to provide stabilizing support.

Last week, July natural gas futures settled at $2.986, up $0.009 or +0.30%.

Energy Information Administration Weekly Storage Report

Prices plunged last Thursday after the EIA reported an injection that exceeded the high end of analysts’ estimates and signaled weaker demand than most had in their models.

The EIA reported an injection of 115 Bcf of natural gas into stockpiles for the week-ended May 21. Natural Gas Intelligence’s (NGI) model called for a 107 Bcf injection.

The actual number was also greater than the 105 Bcf increase in storage a year earlier and the five-year average injection of 91 Bcf.

The strong injection lifted natural gas inventories to 2,215 Bcf. That compared with the year-earlier level of 2,596 Bcf and the five-year average of 2,278 Bcf.

Bespoke’s 15-Day Weather Forecast

Bespoke Weather Services’ 15-day forecast as of Friday included a modest increase day/day in gas-weighted degree days, with the American and European models both showing additional heat in the eastern third of the nation, NGI reported.

By late in the first week of June, “cooling demand jumps back above normal and remains there through day 15, and likely beyond, given the current depiction from all the latest model guidance,” Bespoke said. “This continues to increase the odds of a hotter June, which has been our idea for a long time, though we do expect some variability mixing in at time.”

It “is uncommon to see pure weather trading be a successful strategy in summer, as opposed to winter, and the supply/demand balance is undeniably a good deal weaker than it had been for all of April and into early May,” Bespoke added, referring to the U.S. Energy Information Administration (EIA) latest storage report.

Weekly Forecast

Despite the volatile trade last week and the knee-jerk reaction to the surprisingly bearish EIA report, our analysis is still bullish for natural gas. The market is expected to be choppy at times because by nature, natural gas futures are a highly volatile market.

The EIA data may have been bearish when compared to the consensus but it may end up to be the only triple-digit report for the season, which has bullish implication. By comparison, last year saw five 100 Bcf-plus injections, according to Tudor, Pickering, Holt & Co. (TPH).

Not only is the weather expected to be supportive as we approach the summer months, but LNG feed gas volumes are expected to rise, likely putting them to near record levels.