Natural Gas Price Fundamental Daily Forecast – Rally Only Proves Investors are Defending Recent Bottoms

Natural gas prices rose on Thursday after the government reported a lower-than-expected storage build. The rally in the June futures contract was the largest day-on-day increase for a front-month futures contract since April 20, when the contract saw a 7.9 cent jump.

July Natural Gas futures settled at $2.814, up $0.077 or +2.74%.

According to the U.S. Energy Information Administration, supply rose by 89 billion cubic feet for the week-ended May 4, lower than the 92 billion forecast by analysts at S&P Global Platts. However, the figure was above the 75 Bcf averaged over the past five years.

Currently, national stocks sit at an estimated 1.432 Trillion Cubic Feet, a 26.6% deficit to the five-year average of 1.952 Tcf, according to the EIA data.

Yesterday’s range was pretty impressive with the market rallying from $2.732 to $2.833. The move serves as proof that buyers are still defending recent bottoms at $2.722 and $2.714.

Forecast

Natural gas is trading slightly lower early Friday, but close to yesterday’s high. A trade through $2.833 will signal a resumption of the current counter-trend rally. The daily chart indicates there is room to the upside with the next target $2.878. A trade through this level will change the main trend to up.

Thursday’s price action only confirms that traders reacted as expected to a report that came in below the forecasts. Although we could build a case for those who believe the market will have trouble filling in the supply gap before the start of the summer cooling season. However, current weather and production forecasts indicate that gains should be limited.

The current injection season began about a month late which created a supply deficit due to extended high winter demand. That deficit is expected to dwindle over the next several weeks, partly because of rising U.S. production. U.S. dry production has averaged 78.2 Bcf/d month to date, a 7.6 Bcf/d increase from the 70.6 Bcf/d averaged this time last May.

Total demand has paced near year ago numbers, averaging 69.6 Bcf/d throughout May thus far, down 600 MMcf/d from what was averaged this time May 2017, which gives support to increased storage builds.

Looking ahead, demand is expected to decline over the coming weeks, with Platts Analytics projecting total demand to average 71.8 Bcf/d over the next seven days and 71.3 Bcf/d over the next eight to 14 days.

Possibly, pushing down demand further are increased temperatures, with the most recent six-to-10-day weather outlook from the National Weather Service calling for a likelihood of warmer-than-average temperatures for much of the country.

With production expected to rise and demand expected to fall, hedgers are likely to come in to stop the rally so we expect yesterday’s rally to lead to limited gains.