Natural Gas Price Fundamental Weekly Forecast – Storage Deficit Expected to Shrink Dramatically Over Near Term

Natural gas futures ended the week on a bearish note as lingering bullish traders, hoping for a surprise late session surge in demand due to an unexpected cold blast, finally threw in the towel as the new forecasts painted a generally bearish picture on the weather outlook through the end of the heating season.

“The most recent data continues to suggest a relatively mild pattern will hold over much of the country through the end of the month and into the start of April,” says NatGasWeather.

Adding further to the weakness were concerns over the shrinking of the storage deficit with EBW’s Andy Weissman saying the year/year storage deficit “could be cut by nearly half in just two weeks, with the potential for this decline to continue throughout April”.

For the week, May natural gas settled at $2.802, down $0.068 or -2.37%.

NatGasWeather Sees Neutral to Bearish Pattern

“The most recent data continues to suggest a relatively mild pattern will hold over much of the country through the end of the month and into the start of April,” NatGasWeather said. “As such, after next week, weather patterns will be viewed as neutral to bearish unless there were to be notably colder trends.”

EBW Analytics Warns of Smaller Deficit

“The storage deficit versus last year could be cut by nearly half in just two weeks, with the potential for this decline to continue throughout April,” EBW Analytics Group CEO Andy Weissman said on Friday. “As this pattern starts to become clear, the odds are high that Nymex gas futures prices will head lower.”

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the U.S. Energy Information Administration (EIA) that domestic supplies of natural gas fell by 204 billion cubic feet for the week-ended March 8. That was within range of the 208 Bcf decline forecast by analysts.

Total stocks now stand at 1.186 trillion cubic feet, down 359 billion cubic feet (23.2%) from a year ago and 569 billion cubic feet (32.4%) below the five-year average, the government report showed.

Weekly Forecast

This week, traders are likely to continue to digest last week’s large storage withdrawal and what it suggests about market balance as we approach the start of injection season.

“Weather-adjusted, the market was roughly balanced” for the week’s storage report period “and over the past weeks has trended to a slight undersupply,” according to analysts with Tudor, Pickering, Hold & Co. “Looking forward, forecasts are calling for a bifurcation in temperatures, with the North experiencing warmer-than-normal temperatures and the South experiencing colder-than-normal temperatures, while longer-term, temperatures are trending toward the seasonal average before we enter spring.”

“Finally, U.S. production (up just under 100MMcf/d week/week) has yet to recover as maintenance/outages in the Permian and Denver-Julesburg basins have kept a lid on volumes.” When this area comes back on line, traders should expect to see a surge in U.S. production. This should put further pressure on prices.

It’s early, but next week’s EIA draw is predicted to come in close to the 5-year average of -56 Bcf due to a mix of mild and cool this past week.

The weekly chart pattern and the improving fundamentals suggest prices are headed lower. Our key objective this week is $2.744 to $2.708. Look for a technical bounce on the first test of this zone. However, be prepared for an acceleration to the downside if $2.708 is taken out with conviction.