Natural Gas Price Fundamental Daily Forecast – Downside Bias Until Weather Turns Cold

Natural gas futures gapped lower early Monday as investors continued to react to forecasts calling for warmer temperatures over the short-run. Also contributing to the weakness was uncertainty over the mid-term forecasts and strong production. Bullish traders just don’t know when or if extremely cold temperatures will return and are unwilling to hold on to positions at current price levels because a favorable risk/reward relationship isn’t there.

At 1141 GMT, February natural gas is trading $3.590, down $0.163 or -4.34%.

U.S. Energy Information Administration Report

Total stocks now stand at 2.914 trillion cubic feet, down 722 billion cubic feet from a year ago, and 723 billion below the five-year average.

Short-Term Weather Outlook

According to NatGasWeather for December 17 to December 23, “As a weather system exists in the East Monday, a quick cold shot with chilly conditions will follow across the Northeast. The rest of the country will be quite mild with highs of the upper 30s to 50s across the northern US, with 60s and 70s across the southern US. A strong weather system will track across the southern US Friday-Saturday with rain and snow, although lacking cold air. Next weekend, high pressure will dominate most of the country with above normal temperatures besides portions of the East/Southeast. The West will see occasional weather systems with valley rains & mountain snows for a mix of mild and cool days, but far from cold. Overall, national demand will be low.”

Supply/Demand Situation

According to S&P Global Platts Analytics from Friday, “demand has been in a freefall since reaching 105.4 Bcf on December 10. The average for the week was 96.4 Bcf/d.”

“This slide is expected to continue Saturday when demand for 84 Bcf is expected. After that, the consumption forecast strengthens a bit, averaging 88.2 Bcf/d over the next week and 91.9 Bcf/d the following week.”

Rising production continues to be an issue that has helped cap prices. Dry production is still running at near-record levels. Year-to-date production has averaged 80.5 Bcf/d. At this point in 2017, the average was 71.9 Bcf/d.

Forecast

Barring a long, lingering cold spell which is still a possibility in January or February, we’ve probably seen the high for the season.

Prices are a little oversold according to technical indicators so they could jump higher fairly quickly if the weather guys put cold temperatures back into the forecast. However, unless the cold spell is of the long-lasting variety, hedgers will pounce on any surge in prices.