Natural Gas Price Fundamental Daily Forecast – U.S. Dry Gas Production Numbers Show Storm Had Little Impact on U.S. Supply

Natural gas prices opened lower early Monday on the NYMEX exchange. Today is a U.S. bank holiday so the electronic exchange will see limited price action. Volume is expected to be below average, however, this could lead to volatility since there aren’t going to be any major “stoppers” in the market should it decide to take off to the upside, or break sharply.

At 0151 GMT, October Natural Gas futures are trading at $3.040, down $0.030 or -0.98%.

Driving up prices late last week were concerns over production, however, these concerns are likely to go away once production resumes.

We really don’t know how Harvey will play out for natural gas at this time because the market is still dealing with flood waters and this is delaying the recovery process. Texas Governor Abbott has warned that it could take 10 days or more for the floods to leave.

Traders are saying that the length of time the area’s production is offline and to what degree gas storage grows ahead of the winter heating and withdrawal season are the main questions.

According to an article in Forbes, “we had a very low 30 Bcf injection reported on Thursday, compared to the five-year average of nearly 70 Bcf. October gas prices jumped 10 cents that day, but there is optimism about injections the next few weeks thanks to cooler temperatures continuing.”

Although natural gas prices rose 4.99% last week, traders believe gains could be limited because increased shale production has shifted the geography of our gas supply system. According to the latest data, since 2005, the Gulf of Mexico’s share of U.S. production has dropped from above 25% to below 5%.

At this time, the recovery is on-going but I think we’ve seen the worst of the storm’s impact. Therefore, I think prices have a better chance of retreating than moving higher. By Thursday, for example, interstate pipelines carrying Eagle Ford gas were just 25% below pre-Harvey levels, compared to being nearly 75% below during the storm. Offshore Gulf gas production was up almost 15% from Saturday to Wednesday to nearly 2.8 Bcf/d.

Finally, nationally, U.S. dry gas production on the Saturday that Harvey hit was 72 Bcf/d, but was 73 Bcf/d by Friday. This indicates that Harvey didn’t have much of an effect on U.S. gas supply.

Given this data, I have to conclude that last week’s price action was triggered by low volume and short-covering and that prices are likely to head lower over the near-term.