Natural Gas Price Fundamental Weekly Forecast – Too Many Unknowns in Wake of Hurricane Damage

Natural gas futures tumbled last week with concerns over the impact of Hurricane Florence contributing the most to its nearly 1.50% weekly loss. While the price action near the end of the week was primarily driven by the short-term impacts of the hurricane, the long-term is being controlled by government storage data.

For the week, November Natural Gas settled at $2.751, down $0.039 or -1.40%.

Weekly U.S. Government Storage Report

Last Thursday, the Energy Information Administration (EIA) reported a 69 Bcf build for the week-ended September 7. The news hardly moved the market initially because it was well-within the range of guesses. Also investors were primarily focused on the hurricane.

The prior week’s 69 Bcf build came in below both the 74 Bcf five-year average and the 87 Bcf injection recorded in the year-ago period.

Total working gas in underground storage stood at 2,636 Bcf as of September 7, 596 Bcf (18.4%) below the five-year average and 662 Bcf (20.1%) lower than year-ago inventories, according to EIA. Inventories also currently sit below the five-year historical range, the EIA noted.

Forecast

Traditionally at this time of year, market participants start to look ahead to the heating season especially since the charts indicate the market is fairly-priced near $2.700. At the end of the week, the market was still on track for end-of-season inventories for about 3.35 Tcf. If the heavy selling is over then we could start to see the formation of a support base. However, the impact of Hurricane Florence could delay the normal seasonal response at this time.

The issue at the start of the week will be to determine how bad the flooding is in the region impacted by the hurricane. Then the market will have to figure out how much power is lost, how much demand destruction there is from that, and then it will price that in accordingly.

The last reports showed that over 1 million customers were without electrical power. The storm is moving slowly across North Carolina and South Carolina and is causing “catastrophic flooding” in the region, according to the National Hurricane Center. Some areas have received more than 30 inches of rain. Others, more than 20 inches of rain. Forecasters warned that rains totally up to 3.5 feet could trigger epic flooding through early next week.

The news sounds bearish for prices because of the expected drop in demand. We still don’t know how the nuclear plants will be impacted either. There could be damage. They could be inaccessible. Even if they were operating, where would the demand come from? Furthermore, it may take up to a week before power will be restored.

I think we’re going to see a bearish response early in the week then a rangebound trade as traders sort out the details. This may not be a good week to trade because of the news driven market, you have to assume that someone had the news before you and this could be dangerous especially if you are guessing on the direction of the market.