Natural Gas Price Fundamental Weekly Forecast – Lingering Cold from Week-end Supportive Early then Warm Weather Returns

Natural gas futures settled lower last week, but losses could have been worse if not for a strong short-covering rally on Friday. The market was under pressure most of the week because of inconsistent weather forecasts calling for milder temperatures starting late this week. Prices were further pressured after the weekly U.S. Energy Information Administration (EIA) report showed a larger-than-expected build in storage. The market posted a sharp recovery on Friday on short-covering ahead of the week-end and on increased demand in the spot market.

The EIA storage report showed a 63 Bcf withdrawal from storage stocks during the week-ending November 30. Although this was a little on the high side of the estimates, traders hardly reacted because their focus had shifted to reports that said chillier temperatures could return before the end of the month.

Over the short-term (the next few days), higher spot prices could pull up futures prices. Spot prices are rising because weather conditions were expected to remain on the chilly side through early this week. Genscape is saying that frigid conditions were expected to keep gas demand holding strong on Monday and Tuesday at 95.8 Bcf/d. Demand was then expected to quickly drop into Wednesday at 89.2 Bcf/d and then continue to shed an average 0.38 Bcf/d through the following seven days, the firm said.

Other forecasters are showing even warmer temperatures once this cold snap passes. According to Genscape, day/day changes to the six to 10-day weather forecast have removed about 0.3 Bcf/d from last Thursday’s demand forecast. “Day-over-day changes to the longer-range 11-to 15-day forecast have shown even more warming than previously expected, resulting in the removal of about 1.6 Bcf/d of demand in the forecast.”

According to NatGasWeather.com for December 7-13, “Reinforcing cold air will sweep across the northern U.S. and into the East the next few days where lows will reach the 0s to 20s across the North, with upper 40F over the South and Southeast. Cold air will cover much of the country this weekend, coldest over the Northeast, with strong national demand aided by a weather system tracking across Texas and the southern U.S. with mostly rain, but locally as snow/ice. The west will see a mix of cold and mild. Next week, mild high pressure will gain across the northern and central U.S. Overall, demand will be high into early next week, then moderate.

Forecast

Strong demand over the week-end and for the first two days this week are likely to underpin prices, but then the return of warmer temperatures should put a lid on prices and may even fuel a further correction. Prices aren’t expected to fall too far because of the storage deficit, and because some bullish traders are already looking at the return of colder temperatures near the first of January. I expect to see heightened volatility in the form of a choppy, two-sided trade.