Natural Gas Price Fundamental Weekly Forecast – Not Much Hope for Near-Term Rally Amid Lower Demand Concerns

Natural gas futures finished lower last week and in a position to challenge the summer low. However, the inside move suggests there may have been just enough buying in there on Friday to form an inside trading range. This chart pattern tends to indicate investor indecision and impending volatility.

This raises a couple of questions for me. What is out there in the news providing support and preventing the major short-sellers from squeezing every drop of profit from the longs still lingering in the market? Is there a buyer in there, or are the bears reluctant to continue to short at current price levels?

Last week, October natural gas settled at $2.156, down $0.051 or -2.31%.

After showing some strength early in the week, prices started to retreat as the forecasts for cooler temperatures started to take hold and spot prices began to weaken on lower demand. Prices fell further after the release of a neutral government storage report encouraged the last of the bulls, hoping for a late summer rally to bail out of their speculative positions.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas rose by 59 billion cubic feet for the week-ended August 16. Analysts were looking for an increase of 61 billion cubic feet. Total stocks now stand at 2.797 trillion cubic feet, up 369 billion cubic feet from a year ago, but 103 billion below the five-year average, the government said.

Broken down by region, the Midwest injected 31 Bcf, while the East added 26 Bcf. Small builds were seen in the Mountain and Pacific region, and the South Central posted a net 4 Bcf withdrawal after salt facilities withdrew 9 Bcf and nonsalts injected 5 Bcf, according to EIA.

Short-Term Weather Outlook

According to NatGasWeather for August 23 to August 29, “A weather system associated cool front will sweep out of the Midwest and across the East the next few days with comfortable highs of 70s to 80s. Texas and the South will cool a few degrees as well as a slow moving weather system brings showers and thunderstorms, although briefly warming back up late this weekend and early next week. The rest of the western and southern US will not be hot with highs of 90s to 100s, hottest in California and the Southwest. A stronger cool shot is expected into the central US mid-next week, then spreading south & east. Overall, national demand will be moderate to locally high over the next week.”

Weekly Forecast

A periodic short-covering rally aside, natural gas traders are going to have to start preparing for much lower prices. During the next three weeks, power sector demand for natural gas should rapidly decline, slipping by nearly 6 Bcf/d, according to EBW. Increases in LNG flows would offset less than one-fourth of this drop-off.

EBW also cited last week’s lower prices for both Cal 2020 and Cal 2021 as one reason to expect further weakness this week. “The low figures highlight the extent of bearish expectations amid a currently oversupplied market and projections for a flood of Permian associated gas and weak global LNG demand,” EBW said.

Genscape senior natural gas analyst Rick Margolin is also bearish saying, “With roughly 11 more weeks of injections ahead, current forward curves indicate storage is trending to finish the injection season with about 3,660 Bcf in the ground before winter.”

TPH Analysts said, “It’s our view that the U.S. natural gas market will remain oversupplied in 4Q2019 and 1Q2020, with inventories exiting the year at an 18% surplus to the five-year average, with pricing to remain under pressure on the assumption that gas volumes continue to ramp into the full start-up of Gulf Coast Express.”