Natural Gas Price Fundamental Weekly Forecast – Will Traders Defend the Range, or Continue to Exert Downside Pressure?

Setting aside the fundamentals for a minute, the direction of the May natural gas futures market this week will be determined by whether traders decide to hold the market in a trading range, or let it find new support.The main range is $2.592 to $2.897. Its retracement zone at $2.745 to $2.709 was tested successfully last week when buyers came in at $2.730 on Friday.
James Hyerczyk
Natural Gas

After a spike to the upside earlier in the week failed to attract enough speculative buyers to continue the move, natural gas futures tanked as traders started to price in weak demand over the near-term.

NatGasWeather said, “A warm break is still expected across the Great Lakes and East” late in the upcoming week and into the weekend. Here the data has been “milder trending with highs of 60s to near 70 degrees, resulting in national demand dropping below normal.”

NatGasWeather went on to say, “It remains active across the western and central U.S. with areas of showers, but relatively mild with highs of 40s to 60s. The southern U.S. will be exceptionally comfortable into the foreseeable future with highs of upper 60s to 80s for very light demand.”

Last week, May natural gas futures settled at $2.767, down $0.035 or -1.25%.

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the U.S. Energy Information Administration (EIA) reported the amount of natural gas in U.S. storage facilities decreased 47 Bcf to 1.143 Tcf in the week-ended March 15. The draw was slightly smaller than the consensus expectations, which called for a 48 Bcf pull. As a result, stocks were 315 Bcf, or 21.6%, under the year-ago level of 1.458 Tcf and 556 Bcf, or 32.7%, below the five-year average of 1.699 Tcf.

In 2018, the pull was 97 Bcf. The five-year average draw is 56 Bcf, according to the EIA data.

Short-Term Weather Outlook

According to NatGasWeather for March 22 to March 28, “A weather system will track across the Northeast today with rain, snow, and chilly conditions with highs of 30s and 40s, then warming this weekend. The southern US will be comfortable with highs of 60s to 80s, while unsettled but mild across the western and central US with 40s to 60s. After a brief break across the Midwest and Northeast late this weekend, another cold shot Tuesday – Wednesday will result in a swing back to strong demand as lows reach the teens to 30s. Overall, national demand will swing between moderate and high into next week.”

Mid-Term Weather Outlook

NatGasWeather also said, “The GFS and European models are finally much closer in agreement with the coming 15-day pattern, but still with the EC model a little colder around the start of April. All weather models added demand for next week and around the start of April compared to the start of the week, but prices still are down 7-8 cents on the week. The overall pattern was to the bearish side to start the week but is now relatively neutral with a steady barrage of weather systems impacting the US into the start of April with swings in national demand every few days. With that said, the pattern around April 3-6 doesn’t currently look cold enough, and if it were to hold through the coming week-end, the back end of the 15-day forecast would have a bearish lean when the markets reopen Sunday Evening.”

Weekly Forecast

Setting aside the fundamentals for a minute, the direction of the May natural gas futures market this week will be determined by whether traders decide to hold the market in a trading range, or let it find new support.

The main range is $2.592 to $2.897. Its retracement zone at $2.745 to $2.709 was tested successfully last week when buyers came in at $2.730 on Friday.

If traders decide to hold prices in a range then the new range will become $2.897 to $2.730. Its retracement zone at $2.813 to $2.833 will then become the primary upside target this week.

Traders expect only two more weeks of withdrawals before the switch to injection season begins in the first week of April.

Based on current forecasts, traders are looking for a 28 Bcf withdrawal for the week-ending March 22 and a 21 Bcf pull for the week-ending March 29.

With these two pulls, we could be looking at the lowest volume in storage at the start of the injection season since it bottomed out at 824 Bcf March 28, 2014.

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