Natural Gas Price Fundamental Weekly Forecast – Outlook Remains Bearish Despite Weather Concerns
Natural gas futures finished lower last week as traders shrugged off a potentially bullish weekly government storage report, while shifting their focus to progressively mixed weather reports, worries over demand destruction due to a surge in COVID-19 cases, and lingering problems with LNG demand.
Last week, September natural gas futures settled at $1.765, down 0.082 or -4.44%.
US Energy Information Administration Weekly Storage Report
The EIA reported Thursday that domestic supplies of natural gas rose by 45 billion cubic feet for the week-ended July 10. That was smaller with the average increase of 50 billion forecast by analysts polled by S&P Global Platts.
The latest EIA injection number compares with a 67 Bcf storage build in the same week in 2019 and a five-year average injection of 63 Bcf.
Total Stocks now stand at 3.178 trillion cubic feet trillion cubic feet, up 663 billion cubic feet from a year ago, and 436 billion cubic feet above the five-year average, the government said.
Short-Term Weather Outlooks
Bespoke Weather Services is among the few forecasters calling for more heat, more demand and the possibility of another surge to the upside. Their analysts see scorching summer temperatures through late July and into early August, fueling strong national cooling demand and setting up this month to be one of the hottest Julys on record in terms of gas-weighted degree days.
According to NatGasWeather for July 20-26, “Very hot upper high pressure continues to stretch from California to Texas with highs of mid-90s to 110s, while uncomfortably hot and humid across the South, Southeast and East with highs of mid-90s, including NYC. The Northwest is also hot with highs into the 90s in most areas. Cooler expectations this week will be across the Northern Plains/Midwest as weak weather systems/cool fronts track through. Overall, strong to very strong national demand this week with highs of upper 80s to 100s ruling most of the country besides the Northern Plains/Midwest.”
Weather patterns are on the bullish side, but prices are having trouble gaining traction as weak LNG exports and hefty national supplies have weighed more heavily.
Looking ahead to Thursday’s government storage report, the early forecast is for a build of 40 Bcf. This would come in slightly above seasonal norms of 34 Bcf, despite the strong weather.
The outlook remains bearish except for an occasional short-covering rally.
The key level to watch this week is $1786. A sustained move under this level will indicate the selling pressure is getting stronger. Overcoming this level could fuel another short-covering rally.