Natural Gas Price Fundamental Weekly Forecast – Demand Pressured as Lockdowns Could Extend to April 30

Natural gas futures finished nearly flat last week as the collapse in oil prices has led traders to believe that this will eventually lead in a drop in drilling activity that would consequently lead to lower natural gas production.

The production loss would help relieve the supply glut, which would provide support. However, the shutdown of schools and businesses is pressuring demand, which may offset the drop in supply over the near-term.

Hence, we’re likely to see a sideways trade in the nearby futures trading months, but a hint of bullishness may be reflected in the deferred contracts.

Last week, May natural gas futures settled at $1.671, down $0.004 or -0.24%.

US Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas fell by 29 billion cubic feet for the week-ended March 20.

Ahead of the report, a Bloomberg survey showed a median prediction for a 30 Bcf withdrawal, while a Wall Street Journal poll showed an average estimate of minus 27 Bcf. A Reuters survey landed on a 25 Bcf withdrawal, matching the 25 Bcf pull predicted by Natural Gas Intelligence’s model. Estimates ranged from minus 14 Bcf to minus 36 Bcf.

Total stocks now stand at 2.005 trillion cubic feet (Tcf), up 888 bcf from a year ago, and 292 bcf above the five-year average, the government said.

Rig Count Plunges

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil dropped by 40 to 624 this week. That followed a decline of 19 oil rigs the week before. The total active U.S. rig count, meanwhile, also declined by 44 to 728, according to Baker Hughes.

Analysts Are Making Blind Decisions

Natural Gas Intelligence (NGI) reports, “The coronavirus pandemic has left energy analysts with the unenviable task of trying to light the path forward without the benefit of a historical comparison to offer insight into the present situation.”

“Covid-19 is creating wholly unprecedented impacts across energy markets, compelling radical changes to our forward balance expectations and challenging standard assumptions,” Genscape Inc. senior natural gas analyst Rick Margolin said in a note to clients last Wednesday. “The challenge of forecasting is made difficult by the fact that there are no true precedents or analogs for what is happening now and for how long. Thus, we expect our forecast changes to be frequent and potentially stark over the weeks and months ahead.”

Bespoke Weather Services sees hope however. “If the impacts of the virus can be contained and we see improvement into summer, we see upside risks to prices rather easily.”

Weekly Forecast

We’re probably going to see much of the same price activity that we saw last week. Mild weather conditions are likely to keep a lid on prices, and barring a surprise short-squeeze, it’s going to be hard to find any bullish news.

Furthermore, President Donald Trump on Sunday extended the national social distancing guidelines to April 30 in an effort to keep the projected coronavirus death toll in the U.S. from reaching a catastrophic, worst-case scenario.

That being said, with schools and businesses on lockdown until the end of April, it’s hard to see where strong demand will come from.