In the week that ended on November 15, natural gas prices fell 3.5% and settled at 2.688 per MMBtu (million British thermal units). It was the first weekly loss after two consecutive weekly rises. On November 14, the EIA (US Energy Information Administration) reported a rise of 3 Bcf (billion cubic feet) in natural gas inventories for the November 8 week. A Reuters poll expects a fall of 1 Bcf in the EIA report. A day before the EIA report, natural gas active futures fell by 0.8%.
Next week’s EIA data and weather forecast
The difference between natural gas inventories and their five-year average is denoted by “inventories spread.” In the week ending on November 8, the inventories spread was at 0.1%. A week ago, it was 0.8%. On November 21, if the EIA sees a decline of more than 34 Bcf in natural gas inventories for the November 15 week, the inventories spread will turn negative. Reuters expects a decline of 51 Bcf in the EIA data.
Usually, natural gas prices and the inventories spread moves oppositely. That means, a contraction in the inventories spread is a positive development for natural gas prices and vice versa. Similarly, if the inventories spread enters into the negative territory, we might expect more upside in natural gas prices.
On November 15, Reuters’ weather forecast models suggest a change in HDDs (heating degree days) of between plus 4.5 and minus 21. This is from the earlier forecast for the next two weeks. Higher HDDs could support natural gas prices. In this period, natural gas demand could change by minus 40 Bcf and plus 10 Bcf from the earlier forecast. The mixed weather forecast might lead to range-bound natural gas prices.
According to the EIA STEO (Short-Term Energy Outlook) report released on November 13, it expects Henry Hub natural gas spot prices to average $2.73 per MMBtu in the months of November and December. So far, natural gas spot prices averaged $2.77 per MMbtu this month.
The report projected dry natural gas production at 92.1 Bcf (billion cubic feet) per day in 2019. On a YoY (year-over-year) basis, analysts expect natural gas production to rise by 10%. In 2020, natural gas production could be at 94.1 Bcf per day. Rising production could be a problem for gas prices. In the last ten years, natural gas prices fell by 39.8%.
Also, the EIA estimates that Henry Hub natural gas spot will average $2.48 per MMBtu in 2020. In 2019, prices could average $2.61 per MMBtu. So far, Henry Hub gas spot prices averaged $2.59 per MMBtu.
Natural gas price averages
On November 15, active natural gas futures were 4.6%, 8.2%, 13.5%, and 7.9% above their 20-, 50-, 100- and 200- DMAs (day moving averages), respectively. Prices above these averages suggest bullishness for natural gas. Plus, the difference between the 50-DMA and 200-DMA shrunk to minus 20 basis points.
Between November 18 and November 22, if the 50- DMA moves above the 200-DMA, then it is called a “golden cross.” A golden cross is good news for natural gas prices. Plus, next week, the 20-DMA at $2.57 will be an important support zone for natural gas futures.
In the last trading session, natural gas’s implied volatility was 53.4%. According to this implied volatility level, analysts expect active natural gas futures to close between $2.52 and $2.86 per MMBtu till November 22. This price range is based on a confidence level of 68%. Also, we assumed that prices follow a normal distribution.