Natural Gas Price Fundamental Weekly Forecast – Weather Data Adds a Little Demand for Start of November

Natural gas futures started the week lower amid forecasts calling for mild temperatures and light demand. However, prices started to pick up strength after a successful test of a key technical support zone. Traders also shrugged off a potentially bearish government storage report on Thursday as forecasts began to shift toward the colder side.

Although the market closed lower for the week, the recovery from its lowest level since September 23 was strong enough to put natural gas futures in a position to challenge another key technical area on the charts that could determine the near-term direction of the market. This area comes in at $5.591 to $5.713.

Last week, December natural gas futures settled at $5.461, down $0.139 or -2.48%. This was up, however, from a low of $5.07 hit on October 19.

The early selling pressure last week was likely driven by forecasts calling for a longer-than-expected warm spell in several key demand areas. The turnaround was likely fueled by relatively cheaper prices.

Additionally, as Kevin Dobbs from Natural Gas Intelligence (NGI) noted, “With supplies depleted in Europe and parts of Asia, demand for U.S. exports of liquefied natural gas (LNG) held above 10 Bcf/d during the week and were expected to mount in coming weeks, providing some price support.”

US Supplies Remain Below Historic Averages

The EIA reported on Thursday that domestic supplies of natural gas rose by 92 billion cubic feet (Bcf) for the week-ended October 15. That was slightly larger than the average increase of 88 Bcf forecast by analysts polled by S&P Global Platts.

Total stocks now stand at 3.461 trillion cubic feet (Tcf), down 458 Bcf from a year ago and 151 Bcf below the five-year average, the government said.

Weekly Weather Outlook

According to NatGasWeather for this week, “Weather systems will track across the northern 1/3 of the U.S. with highs of 40s-60s, while still nice over most of the southern 2/3 of the U.S. Overall, national demand will be low through Friday, moderate Saturday through Monday, then back to low mid-next week.”

Weekly Forecast

The outlook remains bullish for this winter, but the timing of the next major rally depends on when the first lingering cold blast hits the forecasts.

Rystad Energy analyst Kaushal Ramesh expects Henry Hub prices to be elevated throughout the winter, reflecting “the barely adequate storage levels” that remain below the five-year average due to modest production levels in the wake of the pandemic.

“Continuing capital discipline by drillers has resulted in production lagging consumption and robust exports,” Ramesh said.

The wildcard remains the weather in Europe. Conditions have eased considerably following the panic buying spree earlier in the month. Inventories were about 74% of capacity at mid-October, but they have risen since then because of warmer-than-usual weather.

So like the U.S., Europe is waiting for cold weather.

Following last week’s setback, traders should be aware that prices can turn higher in a heartbeat. As NatGasWeather put it, “We need to be careful here since it wouldn’t take much for colder air over Canada to slide into the northern U.S. for further colder trends for the first week of November.”

In “our view, the current risk is the weather data adds a little demand for the start of November.”