Natural Gas Price Fundamental Weekly Forecast – Traders Facing Demand Destruction, Increasing Supply

Natural gas futures finished slightly lower last week as traders responded to the wild price action in crude oil with volatility of their own. The price action also reflected concerns over lower production and changes in the weather forecast, but when it was all said and done, worries over demand destruction from the impact of the coronavirus remained the main price driver.

Last week, June natural gas futures settled at $1.895, down $0.008 or -0.42%.

The week started with a surge in prices to their highest level since March 11 as a crash in crude oil prices drove worries about production cuts, and therefore, lower supply. Those gains were capped and prices retreated as spot gas prices fell across the United States as weather forecasts continued to show moderating temperatures heading into May. Demand destruction reared its ugly head also after the release of a bearish U.S. Energy Information Administration (EIA) weekly storage report.

Short-Term Weather Outlook

According to NatGasWeather for April 24-30, “Weak cool shots will continue across the Great Lakes and Northeast into next week with showers and slightly chilly lows of 20s to lower 40s. The South and Southeast will be warm with highs of 70s and 80s, while the Southwest into the Plains becomes hot with highs of 90s and 100s, hottest over the deserts. The rest of the U.S. will be mild to warm and comfortable with highs of 60s to 80s. Overall, moderate national demand.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 43 Bcf for the week-ended April 17. That would compare with last year’s 92 Bcf injection and the five-year 49 Bcf build, according to the EIA.

Total stocks now stand at 2.140 trillion cubic feet (TCF), up 827 Bcf from a year ago, and 364 Bcf above the five-year average, the government report showed.

Weekly Forecast

Gains are likely to remain capped now that demand worries have moved back to the forefront. It’s too early to tell if we’re going to see the same reaction in natural gas like we saw in crude oil last week, but with storage facilities filling, prices sure seem to be headed in that direction.

“The problem continues to be very low demand thanks to the economic shutdowns, leading to a balance that would easily result in a complete filling of storage by this fall,” Bespoke Weather Services said. “Obviously, things can change significantly, as we know at some point the economy will gradually come back, and drops in production are likely, but the timing will be critical in avoiding the risk of running out of storage space.”

Until there are signs of these changes, it is difficult for Bespoke to be bullish at the front of the curve. “That said, price action could remain quite erratic, so we would continue to advise caution if trading this market currently.”