Natural Gas Price Fundamental Weekly Forecast – Momentum, Mild Weather Could Fuel Move into $2.532

Natural gas prices retreated last week, driven lower by forecasts of mild temperatures into March. The winter season officially ends for traders in late March.

This has been an unusual year for natural gas. Periodic cold spells have generated strong demand for natural gas amid tight U.S. supplies, but as of last Friday, the nearby futures contract is threatening to take out the December bottom. Thereby potentially wiping out all of the winter season’s gains.

March Natural Gas futures settled at $2.584, down $0.262 or -9.21%.

In January, U.S. withdrawals set a record of 359 billion cubic feet for the week-ended January 5 and 288 Bcf for the week-ending January 19. However, since the record weekly drop, the weekly inventory decreases haven’t been very impressive.

Traders are blaming the weather and rising production as the two key factors driving the price action. So far this month, temperatures are shaping up to be more than 5% above the 10-year normal benchmark.

Additionally, the EIA projects that U.S. natural gas production will reach a record 80.3 billion cubic feet per day this year, up 6.7 billion cubic feet a day from the 2017 level.

Traders are saying that efficiencies in production have driven break-even costs lower, making it easier to produce more than before.

Forecast

The supply/demand situation is clearly leaning towards supply so the long-term outlook looks bearish. We may see a few bounces in the market due to technically oversold conditions and periodic bouts of cold temperatures. However, the trend is clearly down.

Accuweather.com Senior Meteorologist Bob Smerbeck is even saying that March is generally expected to be “colder than average, with above-normal natural-gas usage across the northern tier of the U.S.” This may help underpin the market or even assist in holding prices in a range, but I don’t think we’re going to revisit the $3.20 area.

Natgasweather.com is forecasting that “milder conditions will gradually spread across the eastern U.S. this weekend as high pressure sets up, allowing highs of 50s to 70s to gain ground, easing national demand. Overall, national demand will ease to moderate.”

Last week’s downside momentum should be enough to trigger a further decline into the December 21 bottom at $2.532. We could even take out this bottom, however, if we do then don’t be surprised by a fast snap-back rally due to profit-taking, short-covering and some aggressive counter-trend buying.