Natural Gas Price Fundamental Weekly Forecast – Expecting Early Weather Related Weakness

Natural gas futures prices retreated last week as mixed weather models encouraged investors to square long positions and wait for more favorable forecasts. Some weather models showed the return of below normal temperatures to some parts of the country. Other forecasts showed the possibility of above average demand. This was enough to shake out the weaker longs.

July Natural Gas futures settled the week at $3.310, down $0.043 or -1.28%.

Leading into last week’s trading action, an upside bias was developing due to lower production, rising exports and speculation that the return of warmer weather would lead to increased demand. Bullish investors were betting that these three factors would stabilize the level of gas in storage leading into the start of the summer air conditioning season.

In other news, the U.S. Energy Information Administration reported that natural gas storage rose by 75 billion cubic feet in the week-ended May 19. This was slightly above the pre-report forecast for a build of 71 Bcf. Last week’s report showed a build of 68 Bcf.

The EIA also said that natural gas in storage currently stands at 2.444 trillion cubic feet. Stocks were 371 Bcf less than last year at this time and 241 Bcf above the five-year average of 2.203 Bcf.

Forecast

Natural gas consumption is expected to decline this week as businesses shut for the long U.S. Memorial Day weekend and as the drop in heating demand exceeds the projected increase in air conditioning use.

With the weather expected to warm during the first week in June, however, the power sector is expected to burn more gas to generate electricity to meet rising air conditioning use.

Looking ahead to next Thursday’s U.S. Energy Information Administration’s weekly inventories report, U.S. gas consumption is projected to rise to 69.4 Billion cubic feet in two weeks from 66.7 Bcf this week.

Additionally, analysts forecast utilities added 81 billion cubic feet of gas into storage during the week-ended May 26, leaving inventories about 10 percent above normal for this time of year. That compares with an increase of 80 Bcf a year earlier and a five-year average build of 97 Bcf for that period.

According to natgasweather.com, during the early part of the week, traders should look for natural gas demand to remain slightly stronger than normal.

Prices may dip early in the week because of end of the month liquidation, but I believe buyers will be waiting if the July futures contract tests the $3.197 to $3.124 retracement area.