Natural Gas Price Fundamental Weekly Forecast – Forecasts Offer Little Encouragement for Bulls

Natural gas futures finished lower last week after failing to follow-through to the upside following the previous week’s higher close. The price action suggests investors had begun pricing in the upcoming cold snap about two weeks ago. This helped dampen some of the speculative buying last week. Furthermore, ample supply and robust production made it difficult for the aggressive counter-trend bullish traders to attract enough buyers to turn the market higher.

Last week, December natural gas settled at $2.459, down $0.058 or -2.30%.

At the end of the week, spot gas prices were trending lower even as a strong weather system moved into the southern Plains. Additionally, the market was pressured after the latest weather data shifted a little toward the warmer side, weighing slightly on the overall demand picture for the next couple of weeks.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 87 billion cubic feet for the week-ended October 18. That matched some estimates, but came in below the average build of 92 billion cubic feet expected by analysts polled by S&P Global Platts.

Total stocks now stand at 3.606 trillion cubic feet, up 519 billion cubic feet from a year ago and 28 billion cubic feet above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for October 25 to November 1, “A strong weather system and cold shot is tracking through Texas and the South with areas of rain and mild to chilly conditions. With lows of 20s and 30s behind the cold front, national demand will be strong the next couple of days. This system will track into the east-central US Saturday, followed by warmer break Sunday through Tuesday as highs warm into the 60s and 70s for lighter national demand. At the same time, a strong cold shot will arrive into the Rockies & Plains with lows of 10s to 30s for strong demand. This frigid early season cold shot will spread across much of the country mid-next week with colder than normal conditions, arriving into the East last. Overall, national demand will be moderate to high, increasing to high to very high mid-next week.”

Mid-Term Weather Outlook

“The latest Global Forecast System (GFS) model run Friday lost a little demand for the last week of October, with cold expected to be slower to arrive in the East, but then adding a little demand back November 3 to 4 by seeing a reinforcing cold shot into the northern United States, according to NatGasWeather.

“Recent data had been inconsistent beyond those dates, with most runs showing warm conditions quickly returning November 5 to November 8, ‘while another smaller camp tries to sneak cold air across the Canadian border,’ the forecaster said. “The milder, more bearish case has the greater odds for November 5 to November 9, but is not a certainty since cold air will be right at the Canadian border and could trend a little deeper into the United States in time.”

Weekly Forecast

With little indication that cold would remain in place after the first week of November, forecasts late last week offered little encouragement for bulls. If that weren’t enough, Thursday’s storage report was yet another reflection of an extremely loose market in which production has dominated.

The short-term range is $2.388 to $2.564. Its 50% level or pivot at $2.476 is proving to be major resistance. It is also the trigger point for an acceleration to the upside.

Cold weather may be coming this week, but traders are already looking at the November 5 to November 9 period, which may bring in milder, more bearish weather.

We may see gains capped due to this outlook, but we don’t necessarily have to see extreme selling pressure since cold air is currently sitting at the Canadian border and could creep into the United States at any time before then.