Natural Gas Price Fundamental Weekly Forecast – Speculators Likely Eyeing Supply Reduction in Saudi Arabia

Natural gas futures finished higher last week, garnering support from the remnants of a powerful short-squeeze rally and an underwhelming U.S. government storage report. Traders may now have to face a potential wave of speculative buying due to the shutdown of the world’s largest oil processing facility in Saudi Arabia after a series of drone strikes rocked the complex.

Last week, November natural gas finished at $2.653, up $0.102 or +4.00%.

Keep in mind that we’re only speculating at this time about a higher opening in natural gas early Sunday because Saudi Energy Minister Abdulaziz bin Salman said the attacks also led to a halt in gas production that will reduce the supply of ethane and natural gas liquids by 50%.

We’re looking for a higher opening because any news of a supply disruption usually brings in the speculative buyers even if they don’t know what the impact will be.

I can live with a spike to the upside, but I don’t think it’s going to turn into a long-term event because there is ample supply in the United States. We’ll know more after we crunch the numbers.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 78 billion cubic feet for the week-ended September 6.

Traders were looking for the EIA storage report for the week-ending September 6 to show another above-average build.

Bloomberg analysts estimated a median build of 81 Bcf with a range of 75 Bcf to 91 Bcf. Reuters analysts forecast an 82 Bcf injection, with a range of 76 Bcf to 94 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at 83 Bcf. Natural Gas Intelligence’s model predicted an 86 Bcf injection. Energy Aspects issued a preliminary estimate of 86 Bcf for this week’s report.

Total stocks now stand at 3.019 trillion cubic feet, up 393 billion cubic feet from a year ago, but 77 billion below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for September 13 to September 19, “Unseasonably strong high pressure will dominate the southern and eastern/east-central US with highs of 80s and 90s for strong late season demand into the weekend.

However, a tropical system will track across Florida and portions of the South and Southeast this weekend and next week, easing highs into the 70s and 80s. The Northwest, Rockies, and North Plains will be comfortable to mild with highs of upper 50s to 70s for light demand.

The important corridor from Chicago to NYC will be mostly comfortable with highs of 70s to mid-80s. Overall, demand will be high across the southern US and up the East Coast and moderate-low across the rest of the US.

Weekly Forecast

Last week’s price action and especially Friday’s suggests there are still speculators holding short positions and the speculative longs are still looking to chase them out. Furthermore, it’s my guess that they aren’t likely to keep rolling over in October and November especially after last year’s huge spike to the upside in early November. I’ve always been told that a short-squeeze won’t end until the weakest short is forced out of the market.

Now the shorts have to deal with the problems in Saudi Arabia that may or may not have an impact on U.S. prices. However, when you put together words and phrases like “halt production” and “reduce supply” in a sentence, speculators are likely to buy first and ask questions later.

On a side note, it’s peak hurricane season in the U.S. so continue to monitor any developments in the Atlantic and the Gulf of Mexico. Our work suggests that hurricanes in the Atlantic that target the East Coast of the U.S. tend to have a bearish effect on demand, while hurricanes in the Gulf tend to be more bullish because of the threat they pose to production facilities.

The weekly November natural gas chart shows an upside bias on a sustained move over $2.691, and a downside bias developing on a sustained move under $2.585.