Natural Gas Fundamental Analysis, April 19, 2017

Natural gas prices fell to a two-week low on Tuesday and in a position to take out a pair of bottoms that could trigger an acceleration to the downside. The weather continues to play a role in whether the supply and demand equation will remain nearly balanced. Worries over this factor appear to be encouraging bullish traders to pare positions.

On Tuesday, June Natural Gas futures closed the session at $3.236, down $0.015 or -0.46%.

The primary driving force behind the recent weakness has been the lack of weather-related demand and the assessment of storage injections.

Additionally, we are currently at the time of the year when it’s not too hot, or not too cold. This is weighing on demand.

Due to expectations of an uneventful spring, traders are shifting their focus on determining whether growing supply will be enough to meet summer demand once the need for air conditioning and natural-gas ramps up.

According to the U.S. Energy Information Administration, natural gas will be the largest source of U.S. electricity generation this summer, although it is expected to decline compared with last year.

On the bearish side, we could see a surge in supply if U.S. shale activity increases this year as expected. Natural gas is a by-product of oil drilling. Additionally, a disruption in exports to Mexico has also eased demand pressure.

I expect to see natural gas prices decline over the short-term then to pick up later in the year with the return of hot weather demand and increased exports from Mexico.

The trigger point for the start of steep break is $3.198. If hedge and commodity funds are forced out at this price then look for a possible acceleration into $3.120 to $3.048.