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Where Natural Gas Prices Could Head after Inventory

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Today at 11:35 AM ET, natural gas prices rose 1.4%. The EIA (US Energy Information Administration) also released natural gas inventories report for the last week. The report showed a decline of 73 Bcf (billion cubic feet). It was 3 Bcf less than the Reuters poll’s forecast.

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Inventories spread and natural gas prices

This decline was below market participants’ expectations, and the negative inventories spread was unchanged. The inventories spread describes the difference between natural gas inventories and the five-year average. The inventories spread was -0.3% last week. A week ago, this figure was at the same level.

In the past, the higher negative inventories spread and the natural gas prices multiyear high coincided. When natural gas inventories moved above their five-year average, prices plunged. To learn more, please read Can the Natural Gas Inventories Spread Rescue Natural Gas Bulls?

Weather forecast is mixed

Today, Refinitiv’s GFS00 weather model reading was 3 HDD (heating degree days) below yesterday’s level. However, the EC00 weather model predicted a rise of 9.2 HDD from Wednesday’s level. Both weather models reported HDD metrics are valid until December 27.

A mixed weather forecast could be a concern for natural gas futures, and the United States Natural Gas Fund LP (UNG) could react to weather forecast data. In the absence of a bullish weather forecast and a bearish inventory report, natural gas prices could stay range-bound.

The Refinitiv report highlighted that today’s natural gas production is around 94.2 Bcf per day, 0.1 Bcf per day less than yesterday’s level. LNG feedgas demand is 8.2 Bcf per day, representing marginal growth from Wednesday’s level.

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EIA STEO

According to the EIA STEO (Short-Term Energy Outlook) report released on Tuesday, total natural gas storage is expected to decline by 1.9 Tcf (trillion cubic feet) between October 2019 and March 2020. The withdrawal figure is less than its five-year average. The EIA already forecast a warmer winter. Please read Why Natural Gas Prices Might Crash in Winter to learn more.

The STEO report outlined that next year, Henry Hub natural gas spot prices could average $0.14 per MMBtu (million British thermal units) lower than in 2019. The EIA projected natural gas spot prices of $2.45 per MMBtu for 2020.

The EIA expects that natural gas production in 2019 could rise by 10% on a year-over-year basis. This figure for 2020 would be 3.3%. The lower natural gas rig count could explain the expected slowdown in natural gas production growth.

Moving averages and natural gas prices

Yesterday, natural gas active futures were 9.6%, 8.7%, 6.1%, and 9.3% below their 20-, 50-, 100-, and 200- DMA (day moving averages), respectively. In addition, the difference between the 200-DMA and 50-DMA widened to 0.6%. In late October, this difference fell to 0.1%.

A “golden cross” would occur if the 50-DMA moves above the 200-DMA. In this event, we could see a sustainable upside in natural gas prices, based on technical analysis. To learn more about moving averages, please read ExxonMobil and Chevron: Do Moving Averages Show a Breakout?

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