Natural Gas Price Fundamental Weekly Forecast – November Storage Build, Mild Temps Point Toward Weaker Demand

Natural gas futures eked out a small gain last week, but there were no indications that the move represented anything other than profit-taking and short-covering following a six-consecutive day decline.

The price action suggests traders are trying to establish a support base around a technical retracement zone at $3.014 to $3.929, but the lack of new longs is preventing the market from extending much beyond that area.

Last week, January natural gas futures settled at $3.122, up $0.091 or +3.00%.

Firm liquefied natural gas (LNG) exports basically kept this market afloat last week, but an EIA injection during the second week of November was a back-breaker for any traders thinking of a quick return to bull-market conditions.

US Energy Information Administration Weekly Storage Report

The EIA reported on Friday that domestic supplies of natural gas rose by 8 million cubic feet for the week-ended November 6. On average, the supply data, which were delayed by a day this week due to Wednesday’s Veteran’s Day holiday, were expected to show a decline of 4 billion cubic feet for the week, according to analysts polled by S&P Global Platts.

Total stocks now stand at 3.927 trillion cubic feet, up 196 billion cubic feet from a year ago, and 176 billion cubic feet above the five-year average, the government said.

Ahead of the report, Natural Gas Intelligence (NGI) reported, a Bloomberg survey found a median estimate of a 3 Billion Cubic Foot (Bcf) decrease in storage with estimates ranging from a withdrawal of 12 Bcf to an injection of 5 Bcf. The results of a Wall Street Journal poll ranged from a pull of 12 Bcf to an injection of 10 Bcf and landed at an average decrease of 2 Bcf.

A Reuters survey found estimates ranging from a withdrawal of 12 Bcf to an injection of 5 Bcf, with a median decrease of 3 Bcf.

NGI’s storage model, however, predicted a 5 Bcf increase. Energy Aspects issued a preliminary estimate of a 10 Bcf injection.

Short-Term Weather Outlook

According to NatGasWeather for November 16 to 22, “A cold shot will track across the Midwest and Northeast Monday – Wednesday with rain and snow and chilly lows of 10s to 30s for a swing to stronger national demand. The southern U.S. remains warm with/highs of 60s to 80s, while weather systems with rain and snow continue into the Northwest with mid to cool highs of 30s to 50s.

After the Northeast system exits Wednesday, much of the U.S. will become warmer than normal Thursday – Sunday with highs of 50s – 60s North and 60s to 80s South for light national demand. Overall, moderate demand through Wednesday, then low.”

Weekly Forecast

The EIA report was bearish but the price action suggested this was already anticipated. Nonetheless, the absence of cold temperatures over the next two weeks has traders bracing for another week of selling pressure as the weather continues to frustrate bullish traders.

Firm LNG demand could slow down the selling pressure, but is just not strong enough to turn it around. Most of all, supply should be going down at this time and it isn’t, forcing frustrated weak longs to dump positions.

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