Natural Gas Price Fundamental Weekly Forecast – Rangebound Unless Colder Weather Arrives Earlier Than Expected

Natural gas futures finished sharply higher last week, helped by strong physical prices, signs of early heating demand and below-average stockpiles. A short squeeze in Appalachia due to seasonal maintenance also helped prices surge.

Helping to limit gains was a report that showed overnight Global Forecast data (GFS) “wasn’t quite as cold” for a series of weather systems expected to arrive into the northern United States late this month into the first few days of October, according to NatGasWeather.com.

For the week, November Natural Gas futures settled at $2.974, up $0.233 or +8.11%.

In other news, U.S. natural gas in storage increased by 86 Bcf to 2.722 Tcf for the week-ended September 14, U.S. Energy Information Administration data showed Thursday. The build was slightly more than the estimate calling for an 83-Bcf addition.

The injection was just below the 87-Bcf build reported during the corresponding week in 2017 but more than the five-year average addition of 76 Bcf, according to EIA data. It was only the second time in the last month the injection was more than average.

As a result, stocks were 672, or 20%, less than the year-ago level or 3.394 Tcf and 586 Bcf, or 18%, less than the five-year average of 3.308 Tcf.

At 2.722 Tcf, total working gas is below the five-year historical range and sits 196 Bcf lower than the five-year minimum.

Forecast

With the start of fall last week, weather will once again become a key issue driving the price action. NatGasWeather says over the short-run, the current weather pattern was “still notably colder than normal with strong early season demand for heating.”

“Recent weather data has been milder/warmer October 4-8 as high pressure returns across much of the country with national demand easing back to light levels.

If this pattern held over the week-end then prices should remain south of the psychological $3.000 level. However if “stronger demand trends over the weekend,” it, “could give reason to take $3.000 out on the Sunday/Monday open,” NatGasWeather.com said.

Additionally, this week’s EIA storage report could prove “quite important since it will come in under the five-year average” and potentially push the year-on-five-year average deficit back above 600 Bcf, a deficit “likely to only marginally improve in the following weeks, if at all.”

Looking ahead to Thursday’s storage report, traders are looking for a 63.4 Bcf injection for the week-ending September 21, which would come in below the five-year average 81 Bcf build and close to the 64 Bcf build recorded a year ago.

Looking even further into the future, “over the past five years, storage levels have peaked on the week-ending November 9 at 3.8 Tcf. That would allow for eight more injections before the flip to net withdrawals begin. An early forecast for at least the next three weeks show no significant reduction in the deficit,” according to S&P Global Platts Analytics.

“Storage is now expected to peak at 3.26 Tcf before the switch to withdrawals in early November,” according to the latest forecast by Platts. “If so, it would be the lowest level to start the heating season since 2003, when stocks peaked at 3.18 Tcf.” However, high gas production may hold prices in a range until the heating season actually starts.

What this means is that we’ve likely seen the low, but we’re not likely to breakout over $3.000 unless the cold weather comes earlier than anticipated.