Natural Gas Price Fundamental Weekly Forecast – Could Continue to Strengthen Unless Production Increases

Natural gas prices surged last week to a multi-year high as cash market prices jumped as summer heat decided to stick around a little longer across much of the Lower 48 states. The news offset some of the regionally cooler temperatures and the torrential rain caused by Hurricane Ida.

The most significant development, however, was the widespread wind damage and floods caused by the Hurricane and the major power outages for hundreds of thousands of customers. The storm also knocked offline natural gas production in the Gulf of Mexico.

Last week, October Natural gas settled at $4.712, up $0.324 or +7.38%.

Energy Companies Forced to Shut In Nearly All Oil and Gas Production in the Region

“After slamming into Louisiana, Ida forced energy companies in the Gulf of Mexico to shut in nearly all of the oil and gas produced in the region for much of the week. This dragged output below 90 Bcf on several days, according to Natural Gas Intelligence (NGI).

Additionally, for most of July and August, output had already hovered just below the 93 Bcf/d level that Bespoke says is needed to align supply with demand following a scorching domestic summer and amid ongoing strong demand for U.S. exports of liquefied natural gas (LNG).

US Energy Information Administration Weekly Storage Report

Natural gas futures were also underpinned by Thursday’s U.S. Energy Information Administration (EIA) report that showed domestic supplies of natural gas rose by 20 billion cubic feet (Bcf) for the week-ended August 27. That number matched the average increase forecast by analysts polled by S&P Global Platts.

Total stocks now stand at 2.871 trillion cubic feet (Tcf), down 579 Bcf from a year ago and 222 Bcf below the five-year average, the government said.

Weekly Forecast

We’re looking for the volatility to continue over the near-term. Although the weather is expected to show a seasonal pattern over the next 15 days, last Thursday’s EIA report served as a reminder that the market is still facing a tight supply and demand balance. Some are saying the deficit may increase from -240 Bcf to 222 Bcf after next week’s EIA report.

The biggest fear is that the supply deficit will continue to increase unless stronger U.S. production occurs to help loosen the balance since it won’t come from a drop in LNG exports since they are expected to remain strong through winter due to tight supplies in Europe and Asia.