Natural Gas Price Fundamental Daily Forecast – Wicked Price Action Ahead of May Futures Expiration

Natural gas futures posted a wicked reversal to the upside on Monday that may have been fueled by massive short-covering ahead of the expiration of the May futures contract on Tuesday.

U.S. weather forecasts were mostly supportive, but lower commercial and industrial demand due to the COVID-19 lockdowns across the country would’ve more than offset any weather related bullishness.

At 19:29 GMT, June natural gas futures are trading $1.918, up $0.023 or +1.21%. This is up from a low of $1.765.

The rebound in the market may have also been fueled by another plunge in crude oil futures, which renewed concerns over lower production. Furthermore, a successful test of a short-term support zone may have also been behind the technical closing price reversal bottom.

May Expiration Volatility

Early in the session, weak near-term fundamentals kept the pressure on the front of the natural gas futures curve. Additionally, the volatile moves in the May futures contract didn’t come as a complete surprise with some analytical firms actually predicting the possibility of erratic movement.

Some “chaotic moves” could be in store prior to the expiration of the May contract, with more risk to the downside than to the upside, according to Bespoke Weather Services.

However, “the market is thinner, meaning it can more easily be pushed around, so we’d still advise caution,” the firm said. “Either way, the data still suggests that it is difficult to really be bullish at the front of this curve until we see clearer signs that the economy is coming back and balances tighten significantly.”

“Winter can remain supported, as that is where the lower production story can take precedence. Is it possible that cuts in production come sooner? Absolutely, and if that happens, the story at the front of the curve can change, but we do not see that yet.”

EBW Analytics Group Sees More Downside Pressure

EBW Analytics Group analysts said they expect the May contract to slide in its last two days of trading, extending Friday’s 6.9-cent sell-off. The firm attributed the recent price weakness to two main drivers, Natural Gas Intelligence (NGI) reported.

First is “the steep decline in weather-driven demand for gas expected over the next two weeks,’ which should result in the first reported triple-digit storage injection from the Energy Information Administration (EIA) next week, the EBW analysts said. The other factor is “collapsing natural gas prices in Europe and Asia, which threaten to shut the door” on U.S. liquefied natural gas exports this summer.

This sets the stage for May to head lower before rolling off the board Tuesday, according to the firm.

“The June contract is also expected to slide this week, potentially ending the week at or below Friday’s close for May,” the EBW analysts said. “The bleeding may temporarily slow by next week, though, as large amounts of oil production start to be shut in and reduce supplies of associated gas.”

Short-Term Outlook

Expect more volatility on Tuesday with the markets showing sensitivity to the May expiration and the crude oil market. Any rallies are not likely to be fueled by a change in demand, but rather production or supply issues.