Natural Gas Fundamental Analysis, April 25, 2017

June Natural Gas futures continued to slide on Monday, falling to a one-month low and closing in a position to test a key technical support area at $3.120 to $3.048. The catalyst behind the selling pressure was mild temperatures and concerns over low demand.

The market is now down five sessions out of six and it has now retraced nearly 50% of the entire rally from $2.817 on February 28 to $3.422 on April 5. Based on this range, the target zone is $3.120 to $3.048. We could see a technical bounce on the first test of this zone.

Pressuring the market has been low demand. This isn’t a surprise, but a seasonal pattern. Demand tends to fall at this time of the year because it’s not too cold for heat and it’s not too hot for air conditioning. The market usually stays in this pattern until the summer returns.

Just last week, traders were counting on a hot summer to boost demand, but on Monday, the Commodity Weather Group LLC changed their forecast. They are now saying the actual summer months may not be as bullish as previously expected.

The Commodity Weather Group is now saying in its seasonal outlook that the June-through-August weather won’t deviate much from norms.

The report goes on to say that investors should expect slightly above-average temperatures on the East Coast in the summer. However, this should be offset by below-normal temperatures in the Upper Plains and Rockies.

Its estimate of cooling demand is about on par with the 30-year average, and slightly below the five- and 10-year averages.

Also weighing on prices are large speculator positions held by hedge and commodity prices. This has been a common pattern this year. According to the Commodity Futures Trading Commission, money managers in the week-ended April 18 expanded a net-bullish position on natural gas to a fresh record high.

As far as today is concerned, we’re looking for prices to fall further into $3.120 to $3.048. The move is likely to be triggered by massive selling by money managers who may be trapped on the wrong side of the market.