Natural Gas Price Fundamental Weekly Forecast – Lower if Weak Weather Demand Offsets Strong LNG Volumes

Last week began with the bulls holding a massively long position in natural gas, and may have ended with a few of the weaker longs licking their wounds following a steep sell-off that saw nearby natural gas prices hitting their lowest levels since August 3.

The catalysts behind the price plunge were rapidly rising temperatures across much of the Midwest that took prices out of freezing territory and into the 70s in most high demand areas. This was enough to drastically curtail heating demand and drive down weekly cash prices.

December natural gas futures settled the week at $2.888, down $0.466 or -13.89%.

November Could Be Top Five Warmest on Record

Bespoke Weather Services said the week’s warmth put the current month on track to finish as one of the top five warmest Novembers on record in terms of gas-weighted degree days.

“It remains a weather-versus-balance battle, but one that weather is winning as long as we see such high-end warmth,” the firm said. “We still have no clear hints that we will move colder even into the late-month at this time.”

US Energy Information Administration Weekly Storage Report

Last Thursday’s EIA weekly storage report was a bullish surprise. The reported drawdown, the first of the season, came in larger than expected and about two-weeks ahead of schedule. The reasons for the drawdown were Hurricane Zeta-related production shutdowns and increased LNG feed gas demand. A cold blast across the Midwest also contributed to solid overall demand.

The EIA said domestic supplies of natural gas fell by 36 billion cubic feet (Bcf) for the week-ended October 30, marking the first inventory withdrawal of the heating season.

Working gas in storage was 3,919 Bcf as of Friday, October 30, according to EIA estimates. Stocks were 200 Bcf higher than last year at this time and 201 Bcf above the five-year average of 3,718 Bcf. At 3,919 Bcf, total working gas is within the five-year historical range.

Weekly Forecast

The lack of weather-driven demand could continue to more than offset strong liquefied natural gas (LNG) levels. LNG feed gas volumes hovered in 2020 peak territory of around 10 Bcf throughout the week, but it looks like it may take even more to offset minimized furnace and air conditioner use.

Prices could continue to slide this week if the forecasts don’t start showing signs of colder temperatures at the end of the month or early December. Furthermore, there are fears that if the current forecasts continue to hold up, we could see storage injections over the storage injections later in the month.