Natural Gas Price Fundamental Weekly Forecast – Average Temps Needed to Fill Storage Gap

Natural gas futures tumbled last week after the government reported a larger-than-expected injection into storage and an easing of weather concerns. Despite the weakness, the market still remained near the low end of the yearly range. This suggests buyers are still concerned that the summer heating season may begin with a large storage deficit.

For the week, June Natural gas futures settled at $2.711, down $0.060 or -2.17%.

Last Thursday, the U.S. Energy Information Administration reported that domestic supplies of natural gas rose by 62 billion cubic feet for the week-ended April 27. That was the first weekly increase in this year’s delayed injection season. Traders expect inventories to continue to build until there is strong summer cooling demand.

Analysts surveyed by S&P Global Platts had forecast a climb of 49 billion cubic feet, and on average over the last five years for the same week, inventories rose by 69 billion cubic feet.

Total stocks now stand at 1.343 trillion cubic feet, down 903 billion cubic feet from a year ago, and 534 billion below the five-year average, the government said.

Essentially, the market reacted as expected. It went down because the EIA report exceeded the consensus estimate, but losses were limited because the number fell within the range.

Forecast

The big concern at this time is how much of the storage gap can be filled before the start of the summer cooling season. Let’s face it, the weather in key demand areas has been erratic this year and there is really nothing to stop this trend from continuing. This could mean an extended spring or an early summer.

An extended spring could be bearish for prices because this would allow gas in storage to build. We may even start to see triple digit weekly injections.

An early summer could be bullish for prices because it would mean lower-than-average weekly injections. This would delay the normal storage build. If temperatures are extremely hot this summer this could also lead to a deficit at the start of the winter heating season. It’s a long way off, but still something to think about.

So at this time, the focus will be on the weather. Remember normal temps will allow the storage gap to be filled before the heat comes. Cooler or warmer than normal temps will slow down the process of filling the storage gap. Additionally, weekly storage builds that are less than average will be supportive and weekly storage build that are more than average will limit gains and put pressure on prices.