Natural Gas Price Fundamental Weekly Forecast – Needs Heat, Favorable Storage Report to Fuel Next Rally

Natural gas futures finished sharply higher last week with most of the gains occurring last Tuesday on a weather-related price spike. The market then drifted mostly sideways the rest of the week, but still managed to hold on to most of its weekly gains.

Last week, July natural gas futures settled at $3.097, up $0.111 or +3.72%.

The week started with several weather models showing the possible development of an intense heat wave, however, gains were capped and prices retreated as the heat forecasts weakened and cash prices fell. Late in the week, another disappointing government storage report also weighed on prices.

Despite the series of potentially bearish events, prices did not collapse enough to conger up images of a late spring, early summer bear market. Helping to continue to drive the friendly narrative suggesting higher prices over the near-term were lingering pipeline issues and a slight shift back toward warmer temperatures.

If there are no major changes over the weekend then the focus for traders this week will continue to be on the pipeline issues and the possibility of the return of heat in the forecast.

Lingering Pipeline Issues

NatGasWeather reported on Friday that a midday spike during the trading session may have been fueled by reports that the Texas Eastern Pipeline (Tetco) force majeure could remain unresolved for “a little longer.”

The weather service also said the critical piece of natural gas infrastructure reinstated a 20% pressure reduction and reduced southwest flows out of Pennsylvania following an amended corrective action order from the Pipeline and Hazardous Material Safety Administration (PHMSA). Although PHMSA had “temporarily approved” the pipeline company’s ability to recommence operations at its “full maximum operating pressure” late last year, regulators had declined to renew the temporary approval. Tetco may need to reapply for permits.

Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas rose by 98 billion cubic feet (Bcf) for the week-ended May 28. That was smaller than the increase of 118 Bcf forecast by HIS Markit. Actually, estimates were all over the place, indicating a lack of confidence in the forecasts.

Total stocks now stand at 2.313 trillion cubic feet (Tcf), down 386 Bcf from a year ago and 61 Bcf below the five-year average, the government said.

Weekly Weather Forecast

According to NatGasWeather for June 7 to June 13, “Very warm to hot high pressure will rule the Midwest and Northeast early this week with highs of upper 80s to lower 90s, while also hot over the Southwest with 90s and 100s for strong national demand. A warm and wet system will bring heavy showers to Texas, the South, and Southeast with highs of 80s, while a cooler system brings showers to California and the Northwest with highs of 50s to 70s. Overall, high national demand this week.”

Weekly Outlook

Natural Gas Intelligence (NGI) is reporting that looking ahead to the next EIA report, The Schork Group said a “particular” spike in heating demand over the Memorial Day weekend in the East and Midwest segued to a temperate week. The typical injection for the Memorial Day holiday report is 86 Bcf, plus or minus 24 Bcf, and the five-year mean is 92 Bcf. Early whisper numbers range between 85 Bcf and 105 Bcf. “We are currently at 95 Bcf.”