Natural Gas Price Fundamental Weekly Forecast – Low Demand, High Production Likely to Keep Pressure on Prices

Natural gas prices plummeted last week, capping their largest November plunge in 18 years as the weather models continued to forecast warmer-than-normal temperatures over the near-term. Also absent from the forecasts were any indications of extremely cold temperatures that are needed to boost demand for the heating fuel.

Additionally, a slightly bigger than expected draw down in weekly storage was offset by a report from the U.S. Energy Information Administration (EIA) that U.S. gas production rose by 1.5% in August to 112.879 billion cubic feet per day from a month earlier.

Last week, January natural gas settled at $2.281, down $0.429 or -15.83%.

The outlook for the second week of December turned warmer overnight, with temperatures now expected to be above normal across most of the contiguous U.S., according to forecaster Commodity Weather Group LLC.

“The trends into mid-month should keep getting warmer” without evidence of a stronger high-pressure area that would allow frigid conditions to settle over the Lower 48, CWG said.

Bloomberg reported, “As gas output from shale basins climbs to fresh highs, the market needs a polar blast to help siphon off the excess supply. Though exports have soared to a record and American homes and businesses are using more of the fuel than ever, production is outstripping demand, leaving gas stored in depleted aquifers and salt caverns near a two-year high.”

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported a 28 Bcf weekly withdrawal from U.S. gas stocks that fell in line with forecasts. The 28 Bcf pull, recorded for the week ending November 22, compares to a five-year average of minus 57 and a 70 Bcf pull for the year-ago period.

Natural Gas Intelligence (NGI) said, “Prior to the report, major surveys had pointed to a withdrawal around 27-28 Bcf, with expectations ranging from minus 16 Bcf to minus 42 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at minus 27 Bcf. NGI’s model predicted a withdrawal of 29 Bcf.”

Weekly Forecast

Friday’s huge sell-off did a lot of damage to the charts, wiping out several layers of support that are now resistance. The downside momentum indicates bearish traders are not afraid to sell weakness, which may mean another round of selling pressure this week.

Based on the close at $2.281, the psychological $2.250 level should be an easy target to reach. Nonetheless, we could see a technical bounce on the first test of this level. If it fails then $2.00 will become the next logical downside target.

Since the move took place during a holiday shortened week and volume was extremely low, we could see a technical bounce when traders return on Monday. However, unless the weather turns extremely cold for a long time, bearish traders are going to treat each rally as a new shorting opportunity.