Natural Gas Price Fundamental Weekly Forecast – Needs More than Strong LNG Demand to Turnaround This Market

Natural gas futures closed lower for a second straight week, hitting its lowest level since the week-ending January 29. Prices were pressured by forecasts calling for milder temperatures this week and a bearish government storage report. Perhaps underpinning prices, at least over the short-term, was optimism over export demand.

Last week, May natural gas settled at $2.739, down $0.070 or -2.49%.

US Energy Information Administration Weekly Storage Report

The EIA on Thursday reported a 98 Bcf withdrawal from U.S. gas stocks for the week-ended February 26. Analysts were looking for a triple digit pull, so the report was deemed disappointing.

Ahead of the EIA report, a Bloomberg survey called for a median draw of 140 Bcf. Analysts polled by Reuters were looking for a median estimate of 135 Bcf and a Natural Gas Intelligence (NGI) model predicted a 135 Bcf withdrawal.

Working gas in storage was 1,845 Bcf as of Friday, February 26, 2021, according to EIA estimates. This represents a net decrease of 98 Bcf from the previous week. Stocks were 277 Bcf less than last year at this time and 178 Bcf below the five-year average of 2.023 Bcf. At 1,845 Bcf, total working gas is within the five-year historical range.

Short-Term Weather Outlook

Bespoke Weather Services said comfortable weather and light heating demand are to permeate most of the Lower 48 in the coming week.

Friday forecasts included “incremental warmer changes, as mid to late next week moves even warmer, not far from record warm levels” in terms of gas-weighted degree days, the firm added. Conditions “should make it more difficult for weather to really move the needle” as far as “overall sentiment in the natural gas market.”

LNG Demand Hits 11 Bcf

LNG export levels on Friday topped 11 Bcf, hanging near record levels after rebounding from the interruptions imposed by the Arctic storm and frigid temperatures that derailed the Texas energy sector in February, Natural Gas Intelligence (NGI) reported. LNG feed gas volumes had plunged to near 1 Bcf at the mid-February low.

LNG exports have “fully recovered from freeze-off disruptions in February and remain priced to operate near capacity throughout 2021 and beyond,” Goldman Sachs analysts said Friday.

Weekly Forecast

The main trend is still up according to the weekly chart. A trade through $2.527 will change the main trend to down. A move through $3.060 will change the main trend to up.

The main range is $2.352 to $3.060. Its 50% to 61.8% retracement zone at $2.706 to $2.622 is the primary downside target. The market closed slightly above the upper level of this range last week. Since the main trend is up, buyers could come in on a test of this zone.

The direction of the market next week is likely to be determined by trader reaction to $2.706 to $2.622. Look for a potentially bullish tone to develop on a sustained move over $2.706 and for a potentially bearish tone to develop on a sustained move under $2.622. Holding inside the range will indicate investor indecision and impending volatility.

It’s going to take more than rising demand for LNG to turn this market around. The market is getting little support from the weather as we rapidly approach the spring shoulder season.

Furthermore, traders are still trying to determine if the huge EIA miss represents a trend or a “one and done” event.