Look for downside pressure or sideways price action until production starts to fall, economic activity increases and stronger energy demand returns.
Natural gas futures are trading higher on Friday after plunging to their lowest level since March 23 the previous session. Prices fell on Thursday on weak-weather driven demand and a bigger-than-expected storage build in yesterday’s government storage report. The outlook remains bearish with national weather forecasts pointing to weak heating demand over the near-term.
At 13:05 GMT, January natural gas futures are trading $2.793, up $0.073 or +2.68%.
U.S. Energy Information Administration Weekly Storage Report
The EIA reported Thursday that domestic supplies of natural gas rose by 31 billion cubic feet for the week-ended November 13. On average, the data were expected to show an increase of 22 billion cubic feet for the week, according to analysts polled by S&P Global Platts.
According to Natural Gas Intelligence (NGI), “A Bloomberg survey found estimates ranging from a withdrawal of 9 Bcf to an injection of 26 Bcf, with a median of a 22 Bcf increase. A Reuters poll found estimates spanning from a pull of 22 Bcf to an increase to an increase of 27 Bcf and a median of a 19 Bcf injection. A Wall Street Journal poll, meanwhile, landed at an average injection of 10 Bcf, though estimates ranged from a decrease of 25 Bcf to an increase of 22 Bcf.”
“Though there is a gulf between low and high estimates, the midpoint of each survey calls for a modest increase, which would mark a departure from seasonal norms. The five-year average is a pull of 24 Bcf.”
“Energy Aspects issued a preliminary estimate for a 19 Bcf build. The firm pointed to warm weather during the week and estimated a 40% deficit in heating degree days for the week versus the 10-year average.”
“NGI model predicted a 23 Bcf injection for the report.”
Total stocks now stand at 3.958 trillion cubic feet, up 293 billion cubic feet from a year ago, and 231 billion cubic feet above the five-year average, the government said.
Short-Term Weather Outlook
According to NatGasWeather for November 20-26, “Much of the U.S. will be warmer than normal today through the weekend with highs of 40s to 60s across the western and northern U.S. besides the colder Northern Plains with 20s and 30s. The southern U.S. remains very nice with highs of 60s to 80s as high pressure rules. A quick cold shot with rain and snow will sweep across the Midwest early next week, cooling highs into the 30s and 40s for a modest bump in national demand. Overall, national demand will be low.”
We’re likely to continue to see downside pressure or at best sideways price action until production starts to fall, economic activity increases and stronger energy demand returns. This doesn’t mean we won’t see periodic short-covering rallies like the one we’re experiencing on Friday.
Traders can and will book profits despite the bearish fundamentals in an effort to shake out the weaker shorts while setting up the market for better shorting opportunities at higher prices.