Natural Gas Drifts Lower as Weather Softens Demand

Natural Gas Technical Analysis

Natural gas markets have drifted a little bit lower in early trading on Tuesday again as the general malaise in this asset continues. With a lack of super-hot weather in the United States, air conditioning demand isn’t picking up enough to wear down supply, and of course, heating is a non-issue at the moment. As this market tends to play fairly weekly during the summer, with the exception of heat waves, none of this is a surprise to me. The question, of course, is how much lower can we go? And really, it’s a bit of an open-ended question.

But for what it’s worth, it looks like in late April the $2.50 region was a bridge too far for the sellers, so that’s one area that you can look at. You can also look at the $2.75 level.

Summer Demand Pressures and Contract Rollovers

To the upside, it would take some type of external pressure. A heat wave is coming to the US, maybe more damage to the natural gas infrastructure in Qatar, driving up fears that the Europeans will have to import liquefied natural gas from the US. Something along those lines are going to be what could push this market. That being said, later this year, we will eventually start to focus on the winter months. Right now, we are currently, as you can see, trading the August contract, which is the hottest month of the year.

The next one, of course, is September. You start to think in September, maybe the end of the month, it starts to get a little cooler in the Northeast, but we’re some distance from there. The cyclical trade does, for the most part, add a bit to my account every year, but right now, this time of year, it’s very difficult to get bullish. That’s especially true if you’re doing it via the futures markets. I suspect I am going to be selling short-term rallies that show signs of exhaustion over the next several weeks, but unless you are a short-term time frame type of trader, it’s going to be a difficult market to find significant moves in.

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