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Natural Gas Price Fundamental Weekly Forecast – Heating Season Begins with Hedge Funds Holding Long Positions

James Hyerczyk
·3 min read

Natural gas futures closed higher last week, helped by relatively strong liquefied natural gas (LNG) demand, limited production and a smaller than expected government storage number. Also helping to keep a lid on prices were mixed weather forecasts, but conditions could change if you look beyond the 11-15 day outlook.

Last week, December natural gas settled at $3.354, up $0.159 or +4.98%.

The November futures contract expired early in the week with a surge into a multi-year high. According to Natural Gas Intelligence (NGI), last week’s early price spike had little to do with supply or demand. Instead, analysts said options trading and massive speculative positioning ahead of the November Nymex contract’s upcoming expiration factored into last week’s price behavior.

The hedge funds remain massively long as the December futures contract rolled into front-month position in the futures market. According to the latest Commodity Futures Trading Commission data, the combined Intercontinental Exchange/Nymex Henry Hub position is net long more than 500,000 contracts.

Hurricane Zeta had little influence on futures prices although it did have a limited bullish effect on cash prices. The new tropical depression developing in the Caribbean/Southwest Atlantic is not in a position to influence prices. Hurricane season in the U.S. ends at the end of the month.

To those who chose to trade off analysts who believe the market rallied on Friday due to the new tropical depression, I suggest you look at a map. Furthermore, I think you need to spend some time learning the various influences on cash and futures prices.

US Energy Information Administration Weekly Inventories Report

The EIA reported Thursday that domestic supplies of natural gas rose by 29 billion cubic feet (Bcf) for the week-ended October 23. On average, supplies were expected to climb by 37 Bcf for the week, according to analysts polled by S&P Global Platts.

Total stocks now stand at 3.955 trillion cubic feet (Tcf), up 285 Bcf from a year ago, and 289 Bcf above the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for October 30 to November 5, “A fresh cold shot will push into the Northeast today with highs of 30s to 50s and chilly lows of 10-30s. A quick break will follow Sunday before another cold shot arrives Monday – Tuesday with similar conditions.

For the rest of the U.S. temperatures will warm into the 50s to 80s as high pressure gains ground, warmest over the southern US. The Northeast will warm into the 50s and 60s as next week progresses, while colder air pushes into the Northwest late next week. Overall, national demand will be moderate-high through Tuesday, then low.”

Weekly Forecast

We remain bullish due to rising demand for U.S. LNG exports, expectations of lower production and the anticipation of colder temperatures.

LNG demand could continue to rise this week and over the near-term if fuel heating needs in Asia and Europe continue to soak up supply.

We could see some choppiness at times, but in our opinion, that will be the hedge funds trying to shake out the weaker longs. We believe that money managers will support the market on dips.

The bigger players are already long. They started to buy in the summer when nobody wanted to own natural gas. Their major purchases were in the deferred contracts, while the public or small traders were still trading the excessively volatile front-month futures contract.

If the market breaks out to the upside then the public will chase it higher, giving the funds a huge advantage. That’s what they call smart money.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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