Natural Gas Price Fundamental Weekly Forecast – Cautious Trade Ahead as Week Expected to Start with Mixed Weather Risks

Natural gas futures finished sharply lower last week as the extremely cold weather blanketing most of the country passed on and forecasts indicated a return to more seasonal temperatures. Data also shows the recent spike higher in prices was attributed to short-covering rather than aggressive speculative buying. Furthermore, weekly government storage data showed another injection with further delayed the start of demand season.

Last week, January natural gas futures settled at $2.750, down 0.123 or -4.28%.

The action last week indicated that milder trends drove prices lower at the start of the week, but a “gradual move back colder” from forecasts helped natural gas prices pare losses going into the weekend, according to Bespoke Weather Services.

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported a 3 Bcf injection into U.S. natural gas stocks for the week-ended November 8, extending the refill season. The 3 Bcf build was on the higher side of the consensus, but bullish versus the historical comparisons, as last year the EIA recorded a 42 Bcf injection for the period, and the five-year average is a 30 Bcf build.

Total stocks now stand at 3.732 trillion cubic feet, up 491 billion cubic feet from a year ago and 2 billion cubic feet above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for November 15 to November 21, “A reinforcing cold shot will sweep across the Great Lakes and Northeast Friday- Sunday with chilly lows of 10s to 30s. A second milder system brings heavy showers to the Southeast with lows of 30s and 40s. The Western and central US will be mild with highs of 50s to 80s, coolest Northwest. A weather system will track across the East/Southeast early next week, just not a very cold one. Mild conditions will cover the rest of the US early next week with much lighter national demand. A stronger cold shot is expected into the northern US late next week. Overall, high national demand through Sunday, then moderate early next week.”

Weekly Forecast

The withdrawal season is poised to “get started in a big way” with the next EIA report on November 21, according to analysts at Tudor, Pickering, Holt & Company (TPH). They pointed to early estimates north of 80 Bcf based on residential/commercial demand tracking 38% above historical norms amid the recent cold weather sweeping through the Lower 48.

Residential/commercial demand over the past week averaged 38.5 Bcf/d, “levels not normally witnessed until late December, and given the significant oversupply in the market, it’s possible” the next storage print will be the “largest until Christmas if weather normalizes,” the TPH analysts said.

That’s a pretty powerful statement because it may mean the market hit its top of the season, or at least until the end of the year.

The Desk’s Early View storage survey Friday showed 20 respondents predicting a median 89 Bcf withdrawal for the week ended November 15, with expectations ranging from a withdrawal of 65 Bcf up to a 102 Bcf pull.

We’re likely to see another gap trade on Monday. The direction will depend on how the forecasts come out over the week-end.

“We suspect production may return to its highs over the weekend, but the market will be focused mostly on what happens” with weather models, Bespoke said. “There are mixed risks, and confidence in details is lower, so we definitely feel like it is a weekend to be cautious and stay neutral until we see what the modeling looks like on Sunday and Monday.

“Our lean is toward some colder risks” for late November, “but projected tropical forcing still suggests some warming into early December, and if that is correct” models “may begin to sniff that out” during the week ahead.