Natural Gas Price Fundamental Daily Forecast – Traders Pricing-in First EIA Drawdown of Season

Natural gas futures are trading higher on Thursday ahead of today’s government weekly storage report. Yesterday, the market fell for a third session as forecasts calling for mild temperatures chased weak longs out of the market.

Helping to underpin the market on Wednesday were reports showing strong liquefied natural gas exports and the anticipation of overall tightened balances with today’s government report expected to show tighter overall balances.

At 12:40 GMT, December Comex gold is trading $3.086, up $0.040 or +1.31%.

Technical factors are also influencing the price action after buyers came in on Wednesday, following a test of key retracement zone support at $3.014 to $2.929. Buyers came in after the market traded down to $3.002, producing a potentially bullish closing price reversal bottom chart pattern. If confirmed, this chart pattern could fuel the start of a 2 to 3 day counter-trend rally with $3.199 to $3.245 the next likely upside target zone.

LNG Feed Volumes Remain Strong

According to Natural Gas Intelligence (NGI), “LNG feed gas volumes hovered close to 2020 highs around 10 Bcf Wednesday, as U.S. export destinations in Asia and Europe were expected to boost demand during the winter months. Bullish LNG trends outshined pleasant fall weather a week ago. However, the dynamic shifted this week as U.S. forecasts have increasingly called for warmth – and minimized heating needs – deep into November. This amounts to a delayed onset of winter and the peak demand for natural gas that accompanies the season.”

Warm Weather Danger for Bulls

“As it stands now, the pattern looks like it would remain warm into the 16- to 20-day thanks to a strong upper level trough from Alaska down the west coast of North America, allowing the downstream warm ridging to continue,” Bespoke Weather Services said.

The current pattern puts this month on track to finish as one of the top five warmest Novembers on record in terms of gas-weighted degree days, Bespoke said.

“It remains a weather-versus-balance battle, but one that weather is winning as long as we see such high-end warmth,” the firm said. “We still have no clear hints that we will move colder into late-month at this time.”

Daily Forecast

Today’s U.S. Energy Information Administration (EIA) storage report, due to be released at 15:30 GMT, is expected to be bullish for the week-ended October 30, with the numbers showing the first drawdown of the season. This would put it about two-weeks ahead of schedule.

The reasons for the expected drawdowns are Hurricane Zeta-related production shutdowns and increased LNG feed gas demand. A cold blast across the Midwest also contributed to solid overall demand.

NGI is predicting a withdrawal of about 28 Bcf. A Bloomberg survey found estimates ranging from a pull of 22 Bcf to 38 Bcf, with a median 31 Bcf decrease. A Reuters poll found estimates ranging from a withdrawal of 10 Bcf to 38 Bcf and a median decrease of 27 Bcf.

We think traders have priced in the milder temperatures so the EIA report will control the price action today. A bigger than expected draw could trigger a rally with $3.199 a potential upside target. A smaller than expected draw is likely to drive prices back into $3.014 to $2.929, where traders will try to re-establish a new support base.