Natural Gas Price Fundamental Daily Forecast – Production Declines Underpinning Prices Ahead of EIA Report

Natural gas futures are trading lower on Wednesday shortly before the regular session opening. The move suggests that traders are already preparing for what could be a very rare triple-digit storage build in April for the last week of the month. However, the selling pressure hasn’t been that devastating as production declines spread across oil-rich basin, helping to underpin prices.

Preliminary forecasts show the U.S. Energy Information Administration (EIA) is expected to report a 105 Bcf injection for the week-ended May 1, according to a survey of analysts by S&P Global Platts. Responses to the survey ranged from an injection of 88 Bcf to 116 Bcf. The EIA will release its weekly storage report on Thursday at 14:30 GMT.

At 10:05 GMT, June natural gas futures are trading $2.070, down $0.064 or -3.00%.

A 105 Bcf injection would be more than the 96 Bcf addition to the corresponding week last year as well the five-year average build of 74 Bcf. An addition within expectations would increase stocks to 2.315 Tcf. The surplus to the five-year average would increase to 391 Bcf, and the overhang to 2019 would grow to 792 Bcf, according to government data.

Short-Term Weather Outlook

According to NatGasWeather for May 5 to May 11, “Weather systems with showers and cooling will sweep across the northern U.S. into next week with highs of 40s to 60s. The Southwest will remain hot with highs of 90s. Near ideal temperatures with highs of 70s to 80s will rule Texas, the South, and Southeast. The Southwest will be hot with 90s to 100s, while mild to warm over the rest of the West with 60s to 80s. Overall, moderate heating demand in the northern U.S., but lighter cooling demand in Texas, the South, and Southeast.”

Daily Forecast

Natural gas spiked higher on Tuesday to its highest level since January 17. The move was fueled by several factors including further declines in natural gas production and cooler weather that is expected to linger through the weekend. Prices were also driven higher by reports of a gas pipeline explosion in Kentucky.

The week-ended May 1 represents a likely turning point for the U.S. gas market as the short-term demand destruction related to COVID-19 begins to be eclipsed by long-term production losses, according to S&P Global Platts Analytics.

Spikes in prices bring an air of excitement to the natural gas market, but they may not necessarily be the best thing for the market. They tend to be short-lived and they really don’t reflect solid buying. Most are formed by aggressive short-covering and the triggering of buy stops.

We have conditions in place, however, that could lead to a lingering uptrend. We have the dampening of demand destruction due to the easing of lockdown restrictions and lower production. This could be enough to underpin prices. If we mix in periodic weather developments then we could have the makings for a decent rally over the near-term.