Natural Gas Price Fundamental Daily Forecast – Weakening Cold Spell Ahead of EIA Report Weighing on Prices

Natural gas futures are trading sharply lower on Thursday ahead of today’s government weekly storage report. The weakness has erased three days of gains, putting the market in a position to fill-in Monday’s gap higher opening. Traders are saying that short-term “overbought” technical conditions and a slight shift in the weather forecasts are the catalysts behind the selling pressure.

At 12:36 GMT, December natural gas futures are trading $2.782, down $0.046 or -1.63%.

U.S. Energy Information Administration Weekly Storage Report

A consensus of estimates are pointing to a build of around 45 Bcf in today’s U.S. Energy Information Administration (EIA) weekly storage report, due to be released at 15:30 GMT, for the week-ending November 1.

A year-ago the EIA reported a 63 Bcf injection, which compares with a 57 Bcf five-year average.

Bloomberg analysts are calling for a median prediction of 45 Bcf, with estimates ranging from 31 Bcf to 51 Bcf. The ICE EIA Financial Weekly Index futures settled Tuesday at 43 Bcf. Natural Gas Intelligence (NGI) is calling for a build of 44 Bcf. My estimate is for a build of 46 Bcf.

Energy Aspects issued a preliminary estimate for a 40 Bcf build for the period ended November 1. Analysts at Tudor, Pickering, Holt & Co (TPH) called for a 47 Bcf build for this week’s EIA report. An injection in this range is “not materially different from norms” around 56 Bcf, the TPH team said.

Short-Term Weather Outlook

According to NatGasWeather for November 7 to November 13, “A strong cold shot will continue to drop down the Plains and into Texas and the South today with increasing showers. The system will stretch across the east-central US with increasing rain and snow as it tracks into the East Coast tonight and Friday. With lows of 0s to 30s behind the cold front across the Plains, Midwest, and Northeast, national demand will jump in the days ahead. The rest of the southern U.S. and the West will be mostly comfortable with highs of upper 60s to 80s besides the cooler Northwest. After a brief break between cold shots late this weekend, an Arctic blast will arrive next week with lows of -0s to 20s for very strong demand. Overall, high demand becoming very high next week.”

Daily Forecast

Prices are under pressure early Thursday because of profit-taking and position-squaring ahead of today’s EIA report. Furthermore, some traders are beginning to question the strength of the current cold spell after U.S. and European weather models “suggested that the intensity of cold could be less than what’s in the current forecasts,” according to Bespoke Weather Services.

The early price action suggests a short-term top may be forming, but this is not likely to be a trend-changing event. If the selling pressure persists then look for a minimum correction into the short-term retracement zone at $2.740 to $2.701. Since the main trend is up, buyers could step in on a correction into this potential support zone.

On the upside, another breakout over $2.905 could create enough upside momentum to challenge the late May top at $3.009. However, if $2.701 fails as support then the selling could extend into another major retracement zone at $2.647 to $2.585.