Natural Gas Price Fundamental Weekly Forecast – Market Anticipating at Least One-More Storage Withdrawal

Natural gas futures started the week under pressure and headed into its lowest level since February 12, but buyers came in on March 26 to stop the price slide at $2.610, just slightly above its last main bottom at $2.600. The buying was strong enough to produce potentially bullish chart patterns on both the daily and weekly charts.

May Natural Gas futures settled at $2.733, up 0.100 or 3.80%.

The turnaround in the market was being credited to continued calls for cold temperatures across the northern U.S. for the first week of April.

NatGasWeather.com attributed the reversal on March 26 and subsequent follow-through to the upside to “weather data holding a colder northern U.S. pattern for the first week of April, while also favoring at least some cooling lasting into the second week of April.”

On March 29, the U.S. Energy Information Administration (EIA) reported that domestic supplies of natural gas fell by 63 billion cubic feet for the week-ended March 23. Traders were looking for a draw of about 70 billion. The five-year average draw is 46 billion.

Working gas in storage was 1,383 Bcf as of Friday, March 23, 2018, according to EIA estimates. This represents a net decrease of 63 Bcf from the previous week. Stocks were 672 Bcf less last year at this time and 346 Bcf below the five-year average of 1,729 Bcf. At 1,383 Bcf, total working gas is within the five-year historical range.

Forecast

The focus will be on the weather this week since it may be a little too early to react to the start of the injection season. Traders have already priced in the fact that end-of-winter inventories should come in lower than average. However, they aren’t too concerned about this because they believe there will be amble supplies to fill storage. Traders will change their minds about the below-average supplies if the injections come in low in April.

With this in mind, we believe that last week’s price action was driven by short-covering rather than aggressive buying. Expectations of at least one more storage withdrawal than we typically see this time of year was likely behind the move.

Whether the short-covering rally continues this week will be determined by the extended forecasts.

The charts clearly show a pair of bottoms at $2.600 and $2.610. This double-bottom technical pattern will be confirmed when $2.831 is taken out. Otherwise, the market is likely to run into a short-term resistance zone at $2.720 to $2.747 or an intermediate-term resistance zone at $2.775 to $2.817.