Natural Gas Price Fundamental Weekly Forecast – Short-Squeeze Possible as Heating Season Winds Down

Natural gas took a hit last week as a slew of milder weather forecasts and worries over the spread of coronavirus drove prices to multi-year lows. The futures market was also dragged down by a plunge in the cash market ahead of the weekend. Natural Gas Intelligence’s (NGI) Spot Gas National Average dropped 10.5 cents to $1.525.

Last week, April Natural Gas futures settled at $1.684, down $0.233 or -12.15%.

At the end of the week, NatGasWeather said domestic gas prices could see further downside pressure as weather models point to March 12 for better prospects of late season cold, but with much more evidence needed to expect it.

“It’s quite possible the weather data trended too mild and adds demand back over the weekend, but it would need to be a considerable amount to be bullish,” the forecaster said.

Besides the forecasts calling for milder temperatures, traders are now saying that the prolonged impact of the coronavirus could lead to lower productivity levels this year.

“Our current assessment forecasts that Covid-19 could result in global E&P investments falling by around $30 billion in 2020 – a significant hit to the industry,” said Rystad Energy’s Audun Martinsen, head of oilfield service research. Some of the investments are likely to come back in 2021, he said, but the situation is expected to worsen in March, slamming the global services industry well beyond Asia.

U.S. Energy Information Administration Weekly Storage report

On Thursday, the EIA reported that domestic supplies of natural gas fell by 143 for the week-ending February 21. Total stocks now stand at 2,200 trillion cubic feet, up 637 billion cubic feet from a year ago, and 179 billion cubic feet above the five-year average, the government said.

Going into the report, traders were looking for a larger-than-average withdrawal for the week-ending February 21.

A Bloomberg survey predicted withdrawals ranging from 145 Bcf to 165 Bcf, with a median of 156 Bcf. Polls by the Wall Street Journal and Reuters produced similar results, while NGI’s model projected a pull of 152 Bcf.

The EIA recorded a 167 Bcf draw for the similar week last year, while the five-year average withdrawal stands at 122 Bcf.

Weekly Forecast

The big question facing traders is whether the short-sellers will continue to press the market lower, or will they begin to book profits as we approach the end of the winter heating season. Aggressive short-covering and a short-squeeze are possible. The bottom line for short-sellers with well-established positions is to project yourself against a fast turn in the market.

In my opinion, the risk is to the upside at current price levels. Don’t get complacent if short.