Last week, natural gas prices fell by 1.3% and settled at $2.29 per MMBtu (million British thermal units). Active natural gas futures ended at their second-lowest level in the last three consecutive weeks. In the 2019–2020 winter season so far, natural gas active futures have ended lower in eight out of 11 weeks.
Natural gas inventory this week
The bearish weather forecast and less-pronounced fall in inventories than traders’ expectations dragged on natural gas prices last week. For more info, read Where Natural Gas Prices Could Head after Inventory. On Thursday, the EIA (U.S. Energy Information Administration) will report natural gas inventories for the last week.
Refintiv expects a draw of 103 Bcf (billion cubic feet) in natural gas inventories. If the EIA reports the same decline in inventories, then the inventories spread (the difference between natural gas inventories and their five-year average) will be at -0.2% for the last week. A week ago, the inventories spread was at -0.3%.
A contraction in the negative inventories spread would be a bearish driver for natural gas prices. The opposite is also true. For instance, on February 21, 2014, natural gas active futures closed at $6.135 per MMBtu, a multiyear high. Then the negative inventories spread expanded to -34.5%. To learn more, read Natural Gas Inventories Spread: What Does It Suggest for Prices?
According to Refinitiv, yesterday, two different weather models suggested a change of -28.8 HDD (heating degree days) and 4.1 HDD, respectively, from last week’s reading. Yesterday as of 10:29 AM ET, natural gas prices had risen 3%.
However, a mixed weather forecast could limit natural gas prices’ upside this week. The United States Natural Gas Fund LP (UNG) is sensitive to Henry Hub natural gas futures.
The total flow of feedgas for liquefied natural gas liquefaction was 8.2 Bcf per day yesterday, almost at the same level compared to Friday’s reading. A rise in total flow to feedgas could reduce natural gas inventories and push natural gas futures up.
Rig count and price target
Last week, the natural gas rig count fell by four to 129. At this level, the count is at its lowest level since December 23, 2016. However, based on Baker Hughes’s rig count report, the oil rig count rose by four—an important development for natural gas prices.
The deeper output cut by OPEC+ might have encouraged US oil producers to add more rigs. Remember, a rise in oil supplies could further push natural gas production. To learn more, read Will Natural Gas Production Rise in the Coming Months?
On Friday, natural gas’s implied volatility was at 51.5%. Based on this implied volatility, natural gas active futures are expected to close between $2.14 per MMBtu and $2.45 per MMBtu this week. Read Implied Volatility: Analyzing Crude Oil and Natural Gas to learn more about this price model.