Natural Gas Price Fundamental Weekly Forecast – Brace Yourself, Triple-Digit Injections are Coming

James Hyerczyk
Updated
Natural gas begins the week at its lowest price level in almost three years. The catalysts behind last week’s steep break is increased shale output, coupled with mild spring weather. However, most of all the rapidly shrinking storage deficit is quickly alleviating fears over a potential supply crunch next winter.

We’ve hit the time of the year when bullish traders will have to wait for the return of hot temperatures in order to generate any meaningful upside action. Natural gas futures finished the week sharply lower after a government storage report showed a slightly larger than expected build.

Favorable weather conditions and improving production are expected to continue to weigh on prices until cooling season demand returns although technical indicators show the market may have entered oversold territory.

Last week, June natural gas futures settled at $2.535, down $0.169 or -6.25%.

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the U.S. Energy Information Administration (EIA) reported that U.S. supplies of natural gas rose by 92 billion cubic feet for the week-ended April 12. Analysts were looking for an increase of 90 billion cubic feet for the latest week.

In 2018, the EIA reported a 34 BCF withdrawal, and the five-year average injection is 21 Bcf. Total stocks now stand at 1.247 trillion cubic feet, down 57 billion cubic feet from a year ago and 414 billion below the five-year average, the government said.

Short-Term Weather Outlook

NatGasWeather forecasts for April 18 to April 24, “Mild to warm conditions will continue across the East today with highs of 60s to 80s. The southern US will be very warm with highs of 70s to 90s, hottest across Southwest deserts. A weather system with showers and thunderstorms will track out of the central US and through the East Friday to Saturday, but only with minor cooling as highs reach the 50s and 60s. The western US will be mild to warm with 60s to 80s for very light demand besides the slightly hot southern US. Overall, national demand will be low.”

Weekly Forecast

Natural gas begins the week at its lowest price level in almost three years. The catalysts behind last week’s steep break is increased shale output, coupled with mild spring weather. However, most of all the rapidly shrinking storage deficit is quickly alleviating fears over a potential supply crunch next winter.

Bloomberg is reporting that “A seasonal lull in heating and cooling demand, coupled with surging production, is accelerating gains in stockpiles of the fuel in underground caverns and aquifers. While inventories are more than 30 percent below normal, they’re poised to refill quickly:  Analysts predict that stored supplies probably rose by more than quadruple the average last week.”

Furthermore, “Though gas demand has climbed as new U.S. export terminals send super-chilled cargoes to buyers as far away as Japan, soaring production continues to dog the market. In the Permian Basin of West Texas and New Mexico, where the fuel is pumped as a byproduct of oil exploration, gas supply has overwhelmed the capacity of pipelines to carry it out of the region, pushing prices below zero on some days.”

Currently, it’s all about production. According to Bloomberg, production is at the highest for the time of year.

“We have just a lot of gas production in this country,” Bob Yawger, director of the futures division at Mizuho Securities USA said last week. “Storage is in fact pretty far behind last year, but you have as much gas as you want and as soon as you want it. That’s what’s killing the market.”

Other than a periodic short-covering rally, fueled by oversold technical conditions, we expect gains to be capped and further downside pressure.

This article was originally posted on FX Empire

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