Natural Gas Price Fundamental Weekly Forecast – Some Heat in Forecast, but Not Enough to Dent Supply

Natural gas hit a multi-month low last week, but traders were able to claw back most of the loss. Last week’s two-sided trade was driven by forecasts showing building heat in long-range weather forecasts, a surprisingly large drop in feed gas deliveries to liquefied natural gas (LNG) facilities, an above-average storage injection and record production.

For the week, September natural gas settled at $2.119, down 0.002 or -0.09%.

The low volume and volatility last week has traders guessing if accumulation is taking place for one last late summer blow-off rally, or if distribution is taking place before a drive to another low.

At 09:57 GMT, September natural gas is trading $2.100, down $0.028 or -1.32%.

U.S. Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) said U.S. natural gas in storage rose 55 billion cubic feet (Bcf) during the week-ended August 2. That was below the 59 Bcf build forecast by Reuters. Bloomberg called for a range of 55 Bcf to 63 Bcf with a median of 59 Bcf. Natural Gas Intelligence (NGI) estimated a 59 Bcf injection. Last year, the EIA reported a 46 Bcf injection and the five-year average stands at 43 Bcf.

NatGasWeather said, “Today’s EIA weekly storage report is expected to show a build in supplies of 58-59 Bcf by the most notable surveys, larger than the 5-year average of 43 Bcf. It was hotter than normal over the Northeast and most of the West and Texas, while cooler than normal across the east-central and southeastern US. Our algorithm predicts a build of 59 Bcf, in line with expectations.”

Short-term Weather Outlook

According to NatGasWeather for August 9 to August 15, “Hot high pressure will rule the western and southern US with highs of upper 80s to 100s, hottest over the Southwest. The exception will be over the cooler Northwest as a weather system brings showers. A strong cool front will sweep across the Midwest and Northeast the next couple days with highs of only 70s to mid-80s for light demand.”

“Temperatures will warm across the northern US early next week as high pressure briefly builds in, followed by another bout of cooling during the middle of next week. Overall, demand will be moderate-low across the northern US and high across the western and southern US, but not quite strong enough overall.”

Weekly Forecast

There is nothing in the forecasts to support the start of a long-term rally, conversely, there is not a lot in the forecast to spike price sharply lower either. This leads me to believe we’re likely to see another week of two-sided trading.

At the start of the week, traders are estimating the next EIA report on Thursday will show an injection in the upper 50 Bcf range for the week-ending August 9. This would put it well above last year’s 35 Bcf build and the 49 Bcf five-year average.

NatGasWeather says, “We believe widespread heat needs to last at least a week if weather sentiment is to be considered bullish, and the data needs more evidence of it.”

Finally, if the heat forecast for late August doesn’t last then storage inventories would continue to rise rapidly, and this would put a cap on gains and probably lead to lower prices.

The weekly chart shows retracement zone resistance at $2.253 to $2.305. Taking out $2.333 could trigger an even further rally into $2.385 to $2.469. However, we really can’t get excited about a rally unless buyers can take out $2.476.