Natural Gas Price Fundamental Weekly Forecast – Forecasts for Better Weather, Lower Demand, Rising Production Weighing on Prices

Natural gas prices finished lower for the week while continuing to consolidate on the daily chart. The price action suggests that optimistic investors are hanging on to the possibility of 1 or 2 more weeks of drawdowns due to lingering cold in several key demand areas. However, pessimistic traders know that the warmer weather is coming so they are helping to limit gains by putting a lid on any rallies.

May Natural Gas futures settled at $2.701, down $0.032 or -1.17%.

To recap the news last week, prices fell sharply on April 5 shortly after the release of the U.S. Energy Information Administration’s (EIA) weekly storage report, but the selling wasn’t strong enough to take out the week’s low hit on April 2 at $2.650.

According to the EIA, U.S. natural gas stocks decreased by 29 billion cubic feet for the week-ending March 30. This number equaled analyst expectations. The five-year average for the week is a withdrawal of 28 billion cubic feet, and last year’s storage increase for the week totaled 2 billion cubic feet. Natural gas inventories fell by 63 billion cubic feet in the week-ending March 23.

Total U.S. stockpiles fell week over week to 34% below last year’s level and are now 20.4% below the five-year average.

The EIA report also showed that U.S. working stocks of natural gas totaled about 1.354 trillion cubic feet at the end of last week, around 347 billion cubic feet below the five-year average of 1.701 trillion cubic feet and 697 billion cubic feet below last year’s total for the same period. Working gas in storage totaled 2.051 trillion cubic feet for the same period a year ago.

Forecast

Despite the fact that U.S. stockpiles are 20.4% below the five-year average, natural gas is not blasting off to the upside because short-sellers are in control and they believe that once the injection season “officially” begins that the short-fall will be erased quickly.

In other words, something unexpected has to happen in order to generate enough upside momentum to scare out a few of the weaker shorts. At this point, I can go out on a limb and say that a tariff by China on U.S. crude oil could be supportive for natural gas if the tariff lasts long enough and is bearish enough to lead to the shutdown in a large number of oil rigs. That would certainly lead to a drop in residual natural gas production.

However, too many events have to line up perfectly for that to affect prices over the long haul so I have to conclude that gains will continue to be limited and prices could fall even further until the hot weather arrives because of the mild weather outlook, an expectation for falling demand and continued strong production.