Natural Gas Price Fundamental Weekly Forecast – Time Running Out for Demand to Alleviate Storage Concerns

Natural gas futures finished higher last week in a relatively choppy trade. The market gapped higher on Monday in reaction to the damage to platforms from Hurricane Delta. Traders initially thought there would be prolonged production shutdowns, but that wasn’t the case, and prices retreated from the gap high.

Prices edged lower most of the week as weather forecasts flipped from cold to average temperatures, but losses were primary offset by fresh demand for liquefied natural gas.

By the end of the week, traders were monitoring the October 28 to November 1 time period for a possible increase in heat-related demand, but there was enough uncertainty being fueled by the U.S and European weather models to cap gains.

Last week, December natural gas futures settled at $3.271, up 0.067 or +2.09%.

US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas rose by 46 billion cubic feet (Bcf) for the week ended October 9.

Total stocks now stand at 3.877 trillion cubic feet (Tcf), up 388 Bcf from a year ago, and 353 Bcf above the five-year average, the government said.

Natural Gas Intelligence (NGI) reported that “Ahead of the EIA report, a Wall Street Journal survey of 11 analysts expected injections to range from 47 Bcf to 65 Bcf, with an average build of 56 Bcf. A Bloomberg survey of seven market participants had a tighter range of projections, which produced a median of 53 Bcf. Reuters polled 14 analysts, whose estimates ranged from increases of 46 Bcf to 74 Bcf, with a median injection of 55 Bcf. NGI estimated a 54 Bcf injection.”

Based on the estimates, the report was construed as bullish, but the news wasn’t earth-shattering enough to suggest the notion of a prolonged rally.

Short-Term Weather Outlook

According to NatGasWeather for October 16 to October 22, “A strong early season cold shot will sweep into the Midwest, Plains, and east-central U.S. the next several days with rain, snow and chilly lows of 15-38 Fahrenheit for stronger national demand.

The rest of the U.S. will be comfortable to warm with highs of 60s to 80s besides hotter 90s from California to Texas. Demand will ease this week as cold shots impact the Rockies and Plains, while comfortable most elsewhere with highs of 60s to 80s. Overall, national demand will be high through Monday, then low Tuesday – Friday of this week.”

Weekly Forecast

December natural gas futures posted another week of volatile two-sided trading as traders assessed the impact on wavering weather outlooks and LNG demand uncertainty. Concerns over storage also pressured prices.

The direction of the market this week is likely to be determined by weather and LNG export demand. If both come in on the high side then look for prices to rally as this news would help alleviate some of the concerns over storage containment.

Another price driver will be the forecast for October 28 – November 1. If the forecasts call for cold temperatures at this time and beyond then look for prices to pop higher. If the forecasts continue to conflict, then look for a sideways to lower trade.

Essentially, in generate a bullish outlook beyond November 1, we’re going to need to see rising LNG demand coupled with above average heating demand.

For a look at all of today’s economic events, check out our economic calendar.