Natural Gas Price Fundamental Daily Forecast – Lower Heating Demand Expectations Drive Prices to 3-Week Low

Natural gas prices are testing their lowest level in three weeks late Friday on forecasts for less cold temperatures and lower demand over the next two weeks than previously expected.

That milder weather should allow utilities to leave more gas in storage. Gas stockpiles were currently about 2.4% below the five-year (2017-2021) average for this time of year, Reuters said.

At 18:00 GMT, January natural gas futures are trading $6.405, down $0.333 or -4.94%. The United States Natural Gas Fund ETF (UNG) is at $19.52, down $1.35 or -6.47%.

Other factors weighing on sentiment are the government’s efforts to reduce the risk of a railroad worker strike, and the uncertainty over whether Freeport LNG will restart production in December.

Updated Models Predicting Weaker December Heating Demand Expectations

The experts at NatGasWeather observed warmer trends overnight from both the American and European weather models.

“Even after shedding demand in the overnight data,” the period from next Thursday through Dec. 15 remained “just cold enough for near normal national demand,” the firm said. However, the updated projections were “not as cold or impressive as what the weather data showed earlier in the week.”

Models had previously advertised a colder outlook for the first week of December “only to back off considerably” on the amount of frigid air sweeping through the Lower 48, NatGasWeather said.

“The weather data continued with that theme” by removing “numerous” heating degree days from the outlook for the second week of December, which had previously been on track to deliver a “frosty U.S. pattern,” the firm said.

Overall, strong demand today, then easing to moderate.”

US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration reported on Thursday that domestic natural gas supplies fell by 81 billion cubic feet (Bcf) for the week ended Nov. 25.

Ahead of the report, Natural Gas Intelligence (NGI) wrote a Bloomberg survey found withdrawal estimates ranging from 72 Bcf to 121 Bcf, with a median 82 Bcf decline in stocks. A Reuters poll found estimates spanning from pulls of 72 Bcf to 92 Bcf, and a median of 84 Bcf.

A Wall Street Journal poll, meanwhile, landed at an average withdrawal of 88 Bcf. Estimates ranged from decreases of 76 Bcf to 99 Bcf.

NGI modeled a pull of 89 Bcf. That compares with a decrease of 54 Bcf during the similar week of 2021 and a five-year average withdrawal of 34 Bcf.

Total working gas stocks in storage stand at 3.483 trillion cubic feet (Tcf), down 89 Bcf from a year ago and 86 billion Bcf below the five-year average, the government said.

Short-Term Outlook

The short-term outlook is bearish because of the 10-14 day weather forecast. Unless this changes over the weekend, traders should expect to feel more pain. The wildcards remain the railroad strike and the Freeport LNG restart.

The initial shock of a railroad strike could be bullish for prices but that rally would be short-lived since the government would likely step in and end the strike early.

The Freeport LNG situation is much more interesting. If the company finally decides on a restart date then prices could turn around quickly. It may takes weeks or months to get up to speed, but once the facility is working at full capacity, we could see about 2.1 billion cubic feet per day (bcfd) of new demand. This would be good for a market starving for bullish news.