Natural Gas Price Fundamental Weekly Forecast – Storage Concerns Trigger Gap Higher

Natural gas futures are trading higher early Monday as traders shrugged off last week’s bigger-than-expected storage build and forecasts calling for milder temperatures than previously expected into the end of the month. Instead of focusing on the smaller picture (last week’s EIA report), investors are shifting their focus toward the relatively low storage figure ahead of the start of withdrawal season later this year.

At 11:11 GMT, September natural gas futures are trading $3.710, up $0.052 or +1.42%.

The EIA printed a bearish number last week, but traders showed a muted reaction to the news as “analysts emphasized supply/balance tightness following bouts of record heat and robust cooling demand throughout June,” Natural Gas Intelligence (NGI) wrote on Friday.

Traders also said that strong liquefied natural gas (LNG) demand, fueled by Asian and European demand for U.S. exports has been supportive. NGI reported that LNG Feed gas volumes hovered near 11 Bcf on Friday.

US Energy Information Administration Weekly Storage Report

Last Thursday, the U.S. Energy Information Administration (EIA) reported an injection of 55 Bcf natural gas into storage for the week-ended July 9. The number topped the year-earlier increase of 47 Bcf and the five-year average 54 Bcf injection.

NGI reported before the report that “a Bloomberg survey Wednesday showed injection estimates ranging from 39 Bcf to 53 Bcf and a median of 49 Bcf. A Reuters poll of analysts found estimates ranging from a build of 38 Bcf to 56 Bcf, with a median injection of 48 Bcf. NGI’s model estimated an injection of 39 Bcf.

The median results would modestly surpass the actual increase of 47 Bcf a year earlier but fall short of the five-year average of 54 Bcf, according to the EIA.

The build for the July 9 week lifted inventories to 2,629 Bcf. That compared with the year-earlier level of 3,172 Bcf and the five-year average of 2,818 Bcf, according to the EIA.

Short-Term Weather Outlook

According to NatGasWeather for July 19 – July 25, “One weather system will bring showers and comfortable highs of 70s and 80s to the Great Lakes and Ohio Valley this week, while a second system stalls across the southern U.S. with heavy showers but still very warm with highs of mid-80s to near 90 Fahrenheit. Hot high pressure continues over the West into the Plains with highs of 90s and 100s. Overall, moderate demand over much of the eastern ½ of the U.S., while strong over the West & Plains.”

Daily Forecast

Prices gapped higher early Monday, which tends to indicate an expected shift in the 15-day weather forecast. Ahead of the weekend, traders expected temperatures to remain inside the middle of the five-year average – and the last five years have been among the hottest on record.

However, Bespoke Weather Services cited relatively light production and said that, with summer demand still solid and expected to extend into September, storage levels could prove dangerously tight by the start of the withdrawal season in November.

Current production levels, combined with the strong LNG export demand is supportive, but we’re probably going to have to see lingering heat to fuel a breakout to the upside.