Natural Gas Price Fundamental Weekly Forecast – Sideways to Higher if Production Keeps Meeting Power Burn

Natural gas futures surged last week to their highest level since June 28 on weather concerns and worries about the storage deficit. The market hit a high of $2.964 before sellers came in following the release of the weekly government storage report that met expectations.

Last Week, October natural gas futures settled at $2.949, up $0.096 or +3.36%.

With the trend up on the daily chart and the market within striking distance of its June top at $3.025, it’s now up to the bears to exert their power if they truly believe record production can fill in the inventory gap before the start of winter.

Weekly Fundamentals

The catalyst behind the price action late in the week was the government storage report. On Thursday, the U.S. Energy Information Administration (EIA) reported that domestic supplies of natural-gas stockpiles rose by 46 billion cubic feet for the week-ended August 3. Traders were looking for a storage build of 43 to 45 Bcf.

Total stocks now stand at 2.354 trillion cubic feet, down 671 billion cubic feet from a year ago and 572 billion below the five-year average, the government said.

The details of the EIA report show a 23 Bcf injection in the East raised stocks to 575 Bcf, compared with 670 Bcf a year ago; a 27 Bcf build in the Midwest to lift inventories to 579 Bcf, compared with 789 Bcf a year ago; a 2 Bcf addition in the Mountain region to nudge stocks up to 148 Bcf, compared with 202 Bcf a year ago; a 5 Bcf withdrawal in the Pacific to drop inventories to 245 Bcf, compared with 290 Bcf a year ago; and a 1 Bcf pull in the South Central region to drop stocks to 807 Bcf, compared with 1.095 Tcf a year ago.

Forecast

This week will start with investors continuing to wrestle with the storage deficit, rising demand and increased production. At this time, production seems to be meeting demand, thereby, having a limited effect on attempts to shrink the supply deficit. Based on this assessment, prices could continue to linger around the $3.00 level, while taking out $3.00 will require another round of lingering hot temperatures.

The bet that bullish investors are making is that the storage deficit will remain wide at the start of heating season on November 1. This is helping to drive the deferred futures contract in December, January and February higher.

September natural gas bulls could run into trouble if production continues to remain strong, but the weather turns cooler. The current weather forecast calls for a couple of periods with cooler risks over the next two weeks where cooler weather will try to drive down into the Midwest and pull cooling demand back toward average. It’s still going to be hot in the west and the south, but we may start to see some cooling in the northern half of the U.S.

Production held above the 80 Bcf/d mark last week and the power burn was about 40 Bcf/d. The early EIA estimate is for an injection of 39 Bcf. Coming in at that figure will allow the year-on-five deficit to widen. This would be supportive for prices.

Conclusion:  Prices are likely to hover around the $3.000 level unless the weather turn markedly lower and production holds at record output. Hot weather and high production won’t do much to prices. In this case, even if prices drop because of technical factors, buyers will likely be waiting on any pullback.