Natural Gas Price Fundamental Weekly Forecast – Ripe for Short-Covering, but Gains Likely to be Capped by Storage Build

Despite bearish supply fundamentals and test of the lowest level since February 15, natural gas futures managed to eke out a small gain last week, signaling that perhaps the short-term buying may be greater than the selling at current price levels. The market was headed for a steep loss until a closing price reversal bottom on the daily chart turned it higher for the week.

Last week, May Natural Gas futures settled at $2.664, up $0.002 or +0.08%.

There was very little change in the fundamentals on Friday, nonetheless, the market turned higher, erasing all of the week’s earlier losses. Traders attributed the turnaround to good, old-fashioned profit taking after a prolonged sell-off from March 19.

Driving most of the selling pressure last week were weaker spot gas prices across most of the country and milder temperatures throughout the week that softened demand. Furthermore, a larger-than-expected storage build marked the official start of storage season.

Losses were likely limited by forecasts for the return of colder temperatures next week, which could have a potential impact on demand and storage supply rebuilding.

As Bespoke chief meteorologist Brian Lovern put it, “We still have slightly above-normal demand” once the current warm spell dissipates, but with a weaker-than-normal cold air source available up in Canada and more storm variability in play, the upcoming blocking pattern has not been able to push the pattern any further to the cold side.”

On Friday, NatGasWeather added that the American weather models reflected slightly cooler trends across the northern United States from Thursday (April 11) to April 16, but then was little changed before and after. They went on to say that the third week out was likely to come in as seasonal to neutral for this time of the year, “but with the potential to trend cooler in time across the northern United States.”

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the U.S. Energy Information Administration (EIA) reported that U.S. natural gas stockpiles increased by 23 billion cubic feet for the week-ending March 29. The consensus called for a build of 2 BCF although some guesses were as high as 10 Bcf. The five-year average for the week is a withdrawal of 28 billion cubic feet, and last year’s withdrawal totaled 29 billion cubic feet, according to the government data. Additionally, Total U.S. stockpiles now stand at 16.8% below last year’s level and 30.9% below the five-year average.

The EIA reported that U.S. working stocks of natural gas totaled about 1.130 trillion cubic feet (Tcf) at the end of last week, around 505 billion cubic feet below the five-year average of 1.635 Tcf and 228 Bcf below last year’s total for the same period. Working gas in storage totaled 1.358 Tcf for the same period a year ago.

Short-Term Weather Outlook

According to NatGasWeather for April 5 to April 11, “High pressure will cover much of the country through early next week with highs of 50s and 60s across the northern US, locally 70s. The southern US will be warm with highs of 70s and 80s, while slightly cooler exceptions will occur with weather systems over the West. Areas of showers and cooling will increase across the northern and central US mid and late next week as weather systems sweep through. Overall, national demand will be low-very low through early next week.

Weekly Forecast

Momentum is trending to the downside and the daily trend is down, however, the weekly chart appears to be picking up support around $2.655, just slightly above a pair of main bottoms at $2.592 and $2.579. This could lead to some short-covering early next week. However, sellers are likely to be waiting for such a move to initiate new short positions.

There is nothing in the weather forecasts to indicate the demand will be strong enough to change the trend to up. However, there may be just enough subtle changes to spook a few of the weaker shorts out of the market.

Furthermore, based on last week’s milder temperatures, we’re likely going to see another storage build which should keep a lid on any rally.

Over the short-run rising production and lower demand should cap prices, but longer-term there are still concerns over US producers’ ability to refill stocks before the next heating season begins. However, some analysts are saying that several regions face obstacles in an effort to fill in the deficits.