Natural Gas Price Fundamental Daily Forecast -Strong Production, Lower Weather-Related Demand Limiting Gains

Natural gas futures are edging lower early Monday as strong output and forecasts calling for less hot weather and lower demand over the next two weeks than previously expected continued to worry traders. The price action also indicates there was little change to this outlook over the weekend.

To a limited extent, weighing on prices was the ongoing outage at the Freeport liquefied natural gas (LNG) export plant in Texas, which left more gas in the United States for utilities to rebuild extremely low stockpiles for next winter.

Furthermore, recent government data showed that short-sellers are in control of the market and are showing no signs of letting up on their bearish positioning.

At 07:03 GMT, September natural gas is trading $7.892, down $0.172 or -2.13%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $27.59, down $0.58 or -2.06%.

Refinitiv Supply/Demand Outlook

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 97.8 bcfd so far in August from a record 96.7 bcfd in July.

With hotter weather expected, Refinitiv projected that average U.S. gas demand including exports would rise from 98.9 bcfd last week to 100.8 bcfd this week before sliding to 99.2 bcfd in two weeks as the heat starts to ease.

Cooler Weather in the Cards

Despite a few lingering hot spots, the latest weather forecasts showed cooler temperatures in store for the East Coast over the near-term.

NatGasWeather said the Global Forecast System (GFS), which had been much hotter than the European model, shed a hefty 12-15 cooling degree days for the August 12-19 period. The coming pattern is still bullish with widespread above-normal temperatures over the interior United States, “just not as impressively hot and ominous compared to recent weeks.”

“We also need to consider weather patterns aren’t going to be as hot as the second half of August progresses, meaning time will soon be running out for extreme summer heat.”

Short-Term Outlook

Price could remain under pressure this week as cooler temperatures are expected to loosen balances that have helped boost prices throughout the summer. Longer-term, the outlook is starting to look a little bullish with demand expected to outstrip supply. There are concerns that light inventories and robust demand could lead to shortages this winter.

Looking ahead to Thursday’s government storage report, the EIA is expected to report a build of 42 Bcf, slightly higher than the five-year average build of 45 Bcf.

Technically speaking, the nearest support zone is $7.372 to $6.888. On the downside, the resistance is a minor retracement zone at $8.485 to $8.705.