Natural Gas Price Fundamental Daily Forecast – Underpinned by Slight Shift in European Weather Model

Natural gas futures are trading higher on Tuesday after posting a dramatic technical reversal bottom the previous session.

The market rallied nearly 5% after testing a fresh seven-month low earlier in the session on Monday. Helping to fuel the turnaround in the market were a number of factors including oversold technical indicators, reports of a slight change in a weather model and expectations demand would rise as liquefied natural gas (LNG) exports increase once export plants exit maintenance outages in coming weeks.

At 10:50 GMT, December natural gas futures are trading $5.803, up $0.50 or +0.87%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $18.58, up $0.76 or +4.26%.

European Weather Model Adds Several Heating Degree Days

Weather models continue to paint a generally bearish pattern over the next couple of months. The European model, a much warmer than its American counterpart in recent days, added several heating degree days (HDD) on colder trends over the weekend.

That could have aided Monday’s rally, but both data sets remain “exceptionally bearish overall” and still are more than 50 HDDs warmer than normal through the first week of November, according to NatGasWeather.

“The start of November maintains a bearish setup as most of the U.S. will be 10-25 degrees warmer versus normal,” the forecaster said. “It will take much colder weather maps for bearish weather headwinds to end, and we continue to look at mid-November for the next best opportunity.”

Major LNG Outages Continue but Close to Ending

Major LNG outages include Berkshire Hathaway Energy’s shutdown on October 1 of its 0.8 billion-cubic-feet-per-day (bcfd) Cove Point LNG export plant in Maryland for about three weeks of planned maintenance and the shutdown of Freeport’s 2.0-bcfd plant in Texas for unplanned work after an explosion on June 8. Freeport expects the facility to return to at least partial service in early to mid-November, Reuters reported.

Traders are anticipating a shift in sentiment once these outages come to an end and demand starts to increase.

Short-Term Outlook

While yesterday’s rally may have been fueled by oversold technical factors that still exist ahead of Tuesday’s session, we suspect that any technically driven rally will be short-lived until the fundamentals turn bullish. Right now that is not the case so any gains are likely to be limited.

Data provider Refinitiv said average gas output in the U.S. Lower 48 states has risen to 99.5 bcfd so far in October, up from a monthly record of 99.4 bcfd in September. This is bearish news.

At the same time, with the coming of seasonally cooler weather, Refinitiv projected average U.S. gas demand, including exports, would rise from 93.9 bcfd this week to 97.1 bcfd next week.

This is a potentially bullish development that is currently being monitored closely because it could help neutralize the bearish sentiment enough to fuel a meaningful short-covering rally.