Natural Gas Price Fundamental Weekly Forecast – Needs Hotter Temps, Bullish EIA Report to Sustain Rally

Natural gas futures closed lower last week despite better than expected news in the government’s weekly storage report. This could mean that the report was already priced into the market, or that investors expect to see lower demand due to the return of more seasonal temperatures. But, this outlook could change in an instant with the bulls currently running the show.

July Natural Gas futures settled the week at $2.962, down $0.001 or -0.03%.

According to the U.S. Energy Information Administration report, natural gas storage in the U.S. rose by 96 billion cubic feet (bcf) in the week-ended May 25. Traders were looking for about 100 Bcf with some estimates coming in as high as 107 Bcf.

That compared with a build of 91 Bcf in the preceding week, an increase of 81 Bcf a year earlier and a five-year average rise of 97 Bcf.

Total natural gas in storage currently stands at 1.725 trillion cubic feet (Tcf), according to the EIA.

That figure is 788 Bcf, or around 31.3%, lower than levels at this time a year ago, and 500 Bcf, or roughly 22.4%, below the five-year average for this time of year.

In other news, U.S. natural gas production in the lower 48 states rose to an all-time high of 88.8 billion cubic feet per day (bcfd) in March, up from the prior record of 87.7 bcfd in February, according to EIA’s 914 production report.

Output in Texas, the nation’s largest gas producer, increased 1.3 percent in March to 22.7 bcfd, the most since April 2016.

Forecast

Last week’s rally stalled at the psychological $3.000 level. Additional resistance comes in at $3.010, $3.019 and $3.043. Unless the heat returns, these levels are going to be hard to exceed. At the same time, the series of higher bottoms at $2.680, $2.714 and $2.722 indicates that buyers are coming in on the dips.

Therefore, I have to conclude that prices are likely to straddle 50% of the $3.043 to $2.605 range at $2.824 unless temperatures turn bullish again.

Looking ahead to Thursday’s EIA report for the week-ending June 1, analysts are already saying we will again see injections fail to eclipse the triple-digit mark, potentially growing deficits in the process.

According to The Desk’s Early View, natural gas storage survey respondents on average are expecting a 91.5 Bcf build for the period, with a median of 91 Bcf. That’s versus 103 Bcf recorded last year and a five-year average 104 Bcf injection.

The further out winter months are stronger than the nearby months. This is supportive on a technical basis. However, don’t expect to see a spike in nearby prices through $3.043 unless we see a hotter temperature outlook, combined with a bullish storage report for the week. Even if nearby prices did reach this level, hedgers would likely come in to stop the rally. The longer-term bullish play is in the deferred contracts, not the nearby contract.