Natural Gas Price Fundamental Daily Forecast – Low Prices Forcing Forcing Drillers to Drop Rigs

Natural gas futures moved higher on Friday on forecasts for colder weather and higher heating demand over the next two weeks than previously expected. Meanwhile, the front-month March contract expired without much fanfare.

April futures prices were also higher for the week as the contract moved to the front-prompt following March’s expiration. Natural gas was up across the board after the nearly March contract briefly dropped below $2 per mmBtu early in the week.

A combination of cooler shifts on weather forecasts, confirmation of 2 (LNG) trains at Freeport restarting and some early announcements that drillers are cutting back on plans for 2023, helped the market produce a potentially bullish technical closing price reversal bottom on both the daily and weekly charts.

On Friday, April natural gas futures settled at $2.458, up $0.116 or -4.77%. The United States Natural Gas Fund ETF (UNG) settled at $8.49, up $0.42 or +5.20%.

Refinitiv Sees Rise in Demand

Data provider Refinitiv estimated 355 heating degree days (HDDs) over the next two weeks, up from 347 HDDs estimated on Thursday. The normal for this time of year is 342 HDDs. HDDs estimate demand to heat homes and businesses by measuring the number of degrees a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).

With cold weather coming, Refinitiv forecast U.S. gas demand, including exports, would rise from 119.0 billion cubic feet per day this week to 121.4 bcfd this week.

Refinitiv Reports Production Drop in February

Refinitiv said average gas output in the U.S. Lower 48 states fell from 98.1 bcfd in January to 97.4 bcfd so far in February, due to a cold spell earlier in February which froze oil and gas wells. That compared with a monthly record of 99.8 bcfd in November 2022.

EIA Reports Bigger Pull than Expected

On Thursday, the U.S. Energy Information Administration (EIA) said utilities pulled 71 billion cubic feet (Bcf) of gas from storage during the week ended Feb. 17. That was more than the 67 Bcf decrease analyst forecast in a Reuters poll.

Freeport LNG Showing Some Promise

Freeport LNG is not expected to return to full commercial operation until mid-March or later, but last week, it was on track to pull in about 0.75 bcfd of gas from pipelines for a third day in a row on Friday, according to Refinitiv.

Once Freeport LNG gets rolling, it can turn about 2.1 bcfd of gas into liquefied natural gas for export.

Looking Ahead…

The most promising news for the bulls so far this year is that some firms are making moves to reduce production in the coming months due to lower prices.

Last Wednesday, Chesapeake Energy Corp. said it would drop three drilling rigs in coming months and would reduce gas output by 4% to 6% this year. The move followed Comstock Resources Inc.’s, which earlier disclosed it would take down two rigs in coming months due to weaker prices.

Technically speaking, April natural gas futures are still forming a support base. After confirming the closing price reversal bottom at $2.113 on Feb. 22, we are now looking for a surge into at least $2.685 to $2.819.

Since the main trend is down, sellers are likely to come in. However, there is still a chance a bottom could form if aggressive counter-trend buyers come in on the next short-term correction.