Natural Gas Price Fundamental Weekly Forecast – Demand Destruction Continues to Outpace Supply Drops

Natural gas futures finished lower last week as bearish news continued to dominate the trade. Sellers remained in charge, primarily influenced by forecasts calling for cooler temperatures, bulging inventories and declining liquefied natural gas (LNG) demand.

Last week, August natural gas settled at $1.815, down $0.071 or -3.76%.

Weather and LNG Concerns Guiding Prices Lower

According to Bespoke Weather Services, in the near term, weather patterns have shifted modestly cooler for the weekend and into early next week. At the same time, LNG volumes slipped, and the latest storage injection pointed to a long slog, dependent in part on consistent heat over the summer, to bring supply and demand into balance, Natural Gas Intelligence wrote.

As the week ended, daily balance data shifted weaker, “with production marginally higher to end the week, and LNG volumes dipping back under 4.0 Bcf level,” Bespoke said in a note. “Power burns were also revised weaker for Thursday, and while still stronger this week on a weather adjusted-basis than we have seen over the last several weeks, we have still been unable to get demand back to pre-COVID-19 levels, making it difficult any rally.”

US Energy Information Administration Weekly Storage Report

The U.S. Energy information Administration reported Thursday that domestic supplies of natural gas rose by 93 billion cubic feet for the week ended June 5. That was slightly less than the average increase of 95 billion forecast by analysts polled by S&P Global Platts.

Last year, the EIA recorded a 107 Bcf increase in storage for the similar week.

Total stocks now stand at 2.807 trillion cubic feet, up 748 billion cubic feet from a year ago, and 421 billion cubic feet above the five-year average.

Weekly Forecast

Even if heat hits large areas of the Lower 48 during the second half of June, it’s going to be hard to sustain a rally since commercial and industrial demand is only gradually recovering. Furthermore, even as states ease pandemic-related restrictions, there are reports of a surge in new coronavirus cases throughout the United States in areas that only recently had shown steep declines.

Last Wednesday, the U.S. Federal Reserve suggested the economy may have bottomed in April, but policymakers also said total economic output or GDP, is still expected to shrink by 6.5% this year.

We still expect the major players to sell rallies as long as demand destruction continues to outpace supply drops.

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