Natural Gas Price Fundamental Weekly Forecast – This Week’s EIA Report Should Bring ‘A Hefty Draw’

Natural gas futures inched higher last week, overcoming a mostly choppy trade. Mixed weather forecasts were primarily responsible for the volatility while prices remained supported by solid demand for liquefied natural gas (LNG) and signs of lower production. The government’s weekly storage report was slightly bullish although you wouldn’t know it from the initial reaction by traders.

Last week, February natural gas futures settled at $2.681, up $0.078 or +3.00%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas declined by 122 billion cubic feet (Bcf) for the week-ended December 11. A consensus of analysts expected a 120 billion draw.

Total stocks now stand at 3.726 trillion cubic feet, up 284 billion cubic feet from a year ago, and 243 billion cubic feet above the five-year average, the government said.

Weather Recap

The big story last week was the gigantic storm that dropped more than a foot of snow in several East Coast states last Wednesday and Thursday. The major demand areas affected were Philadelphia, New York City and Boston. The storm brought with it cold temperatures that drove strong heating demand especially in the Northeast. This drove up cash prices in the region for four consecutive days starting last Monday.

AccuWeather reported snowfall accumulations in excess of 40 inches in parts of New York, Pennsylvania and Vermont. “The monstrous Nor’easter that roared up the Eastern Seaboard Wednesday into Thursday resulted in eye-popping snowfall totals,” the forecaster said.

After the storm passed, demand eased some and spot prices retreated Friday amid profit-taking, but the decline was not nearly enough to offset gains made earlier in the week, according to Natural Gas Intelligence (NGI).

Weekly Forecast

We could be in for another bumpy ride this week as traders continue to bounce inside a short-term 50% to 61.8% retracement zone at $2.685 to $2.760. Trader reaction to this area will determine the next near-term move.

A bullish move could develop over $2.760. If this move is able to generate enough upside momentum then look for the rally to possibly extend into the late November top at $3.002. Of course, it’s going to need help from the weather to get there.

Prices could weaken on a sustained move under $2.685. If this move is able to create enough downside momentum then look for the selling to possible extend into the short-term 50% level at $2.546.

There is more room to the upside than to the downside because sentiment has turned slightly bullish. Bespoke Weather Services said late last week, “we still have not ruled out the risk of a colder window around the start of the new year, which we think would certainly be bullish to the market.”

In other news, this week’s EIA report “should bring a hefty draw,” NatGasWeather said, reflecting the robust heating demand brought on by the snowstorm. The forecaster expects a wide range of analyst estimates, spanning from pulls of 145 Bcf to 170 Bcf. But it said the ultimate result will almost certainly eclipse the five-year average withdrawal of 127 Bcf.