Natural Gas Price Fundamental Weekly Forecast – Production Expected to Offset Demand This Week

Natural gas futures closed lower last week as stubborn speculators finally succumbed to expectations that moderating temperatures in the coming weeks may result in higher weekly storage injections.

October Natural Gas futures settled the week at $2.913, down $0.036 or -1.22%.

Although the pullback was primarily driven by expectations temperatures would moderate, high production levels also contributed to the selling pressure.

Weather Forecast

According to the latest report, the U.S. National Weather Service expects milder temperatures to cover much of the western U.S. over the next six to 10 days while warmer-than-average temperatures are forecast for the rest of the country. Longer-term, the NWS says the September outlook shows warmer-than-normal temperatures for much of the U.S.

Production

According to S&P Global Platts Analytics, U.S. dry gas production averaged 82.4 Bcf/d over the past seven days. Output is forecast to maintain this level over the next two weeks. So far in August, production averaged 81.7 Bcf/d, up 9.1 Bcf/d from a year-ago level of 72.6 Bcf/d.

Demand

S&P Global Platts Analytics also reported that an 800 MMcf day-on-day climb was mainly driven by rising power burns in the Northeast and Midcontinent production areas. However, this consumption increase was somewhat offset by lower Southeast demand. Total demand stood at 76.1 Bcf Friday, up 400 MMcf day on day. Demand is estimated to pick up and average 79.4 Bcf/d over the next seven days.

U.S. Energy Information Administration Data

On Thursday, the U.S. Energy Information Administration (EIA) announced a storage build of 48 Bcf, bringing total stocks to 2.345 Tcf for the week-ending August 17. Total stocks are 684 Bcf less than inventories one year ago and 599 Bcf less than the five-year historical average.

Nationwide gas stocks are at 2.435 Tcf in the week that ended August 17, a 19.7% deficit to the five-year average of 3.034 Tcf, according to the EIA.

Forecast

With the production growth expected to offset the slight rise in demand, gains are likely to be limited this week. The nearby futures contract are expected to feel most of the selling pressure due to weakness in the spot months. However, the deferred winter strip –November to March – is expected to continue to remain firm as speculators price in a storage deficit at the start of the winter heating season in November.