Natural Gas Price Fundamental Weekly Forecast – High Production, Weak Demand Expected to Cap Gains

Natural gas futures finished a little better last week as speculators priced in some early January cold, but gains were capped by the continuation of record warmth. In addition to the weather-driven declines, prices were also pressured by strong production, which held near record levels of around 34 Bcf/d throughout the week.

Last week, March natural gas futures settled at $3.557, up $0.043 or +1.22%.

US Energy Information Administration Weekly Storage Report

Weather-related concerns supported prices early last week, but prices started to drop on Thursday following the release of a bearish government storage report. The U.S. Energy Information Administration (EIA) said utilities pulled 136 billion cubic feet (Bcf) of gas from storage during the week-ended December 24. That was higher than most pre-report estimates.

Ahead of the EIA data, Natural Gas Intelligence (NGI) reported, a Wall Street Journal survey of 11 analysts produced a range of withdrawal estimates from 66 Bcf to 128 Bcf, with an average draw of 114 Bcf. A Reuters poll had an even wider range, with a median pull of 126 Bcf. NGI modeled a 142 Bcf withdrawal.

For Reference, the EIA recorded a 120 Bcf draw in the same week last year and the five-year average pull is 121 Bcf.

Last week’s withdrawal reduced stockpiles to 3.226 trillion cubic feet (Tcf), or 0.6% above the five-year average of 3.207 tcf for this time of the year.

Weekly Weather Outlook

According to NatGasWeather for January 3-9, “Demand will be strong across most of the U.S. the next couple days as a frigid cold shot over the Midwest dives deep into the southern U.S. and across the East.

Lows will be in the -20s to 20s over the northern U.S., while chilly over the southern U.S. with lows of 10s to 30s. After a brief milder break across the southern and eastern U.S. Thursday-Friday for another round of strong national demand.

The West will be cool and unsettled early in the week, then warming and drying late in the week besides the wetter Northwest.

Overall, national demand will swing between high and moderate the next 7-days.”

Weekly Forecast

Cash market traders will focus on the short-term weather forecasts, while futures traders turn their attention toward the January 11-15 period. According to the weekend forecasts, this period is expected to come in strongly warm/bearish biased with both the GFS and EC losing more than 20 HDDs (Heating Degree Days) in the latest run. Additionally, preliminary forecasts are showing a possible return of cold January 16-18.

All of this suggests a sideways-to-lower trade during the week-ending January 7.

As far as the week’s EIA storage report is concerned, early estimates predict a draw of -60s to -80s Bcf. This would come in much smaller than the 5-year average of -108 Bcf.