Last week, Henry Hub natural gas prices fell 7.3% and settled at $2.158 per MMBtu (million British thermal units), marking their largest weekly decline since November 29. On Friday, natural gas active futures fell after the EIA (U.S. Energy Information Administration) reported a decrease of 161 Bcf (billion cubic feet) in natural gas inventories during the week ended December 20. Reuters-polled analysts had forecast a decline of 148 Bcf.
The negative inventory spread (the difference between natural gas inventories and their five-year average) expanded to -2.1% from -0.3% in the week ended December 13. Usually, a negative inventory spread boosts natural gas futures. However, active natural gas futures fell by 5.9%.
Today, Refinitiv’s GFS00 weather forecast model suggested a rise of 5.6 HDDs (heating degree days) from Friday’s reading. Meanwhile, the EC00 weather forecast model suggested a 4.3 HDD rise from last week’s readings. Both HDD forecasts are valid until January 12.
On Friday, these weather models forecast a fall in HDDs from Thursday’s reading, which may explain the fall in natural gas prices last week. HDDs are a measure of natural gas demand for heating purposes in winter. Similarly, CDDs (cooling degree days) measure natural gas demand in summer.
As of 9:13 AM ET today, natural gas prices had fallen 0.6%. This fall could impact Chesapeake Energy (CHK), whose natural gas production mix exceeded 60% in the third quarter.
Refinitiv estimated natural gas inventories withdrew by 50 Bcf last week, 40 Bcf and 24 Bcf below their five-year average withdrawal and their withdrawal during the same week last year. Refinitiv suggested a surge in Permian Basin natural gas production and subdued natural gas exports could be a problem for prices. A lower flow of natural gas to Mexico could be behind weaker exports. Total LNG feedgas demand is 8.4 Bcf per day.
Last week, the natural gas rig count stayed at 125, unchanged week-over-week. Meanwhile, the oil rig count declined by eight to 677.
After the OPEC+ deeper output cut agreement, US oil producers might increase production in anticipation of higher oil prices. Natural gas supplies could surge further. To learn more, read 2020’s Natural Gas Outlook: Winter Is Coming.
Moving averages and natural gas prices
On Friday, active natural gas futures were 6.8%, 12.2%, 10%, and 11.6% below their 20-, 50-, 100-, and 200-DMAs (day moving averages), respectively. Natural gas prices’ technical indicators are bearish. Although their 50-DMA moved above their 200-DMA for the first time last week since February, weak natural gas prices could reverse this “golden-cross.” Natural gas prices’ 20-DMA of $2.30 is their immediate resistance zone.
Last week, natural gas’s implied volatility was 42.9%, 15% below its 15-day average. The fall in implied volatility could be a bearish development for prices. In the past, prices and implied volatility have moved together. To learn more, read Implied Volatility: Where Will Crude Oil and Natural Gas Be in One Week?