Natural Gas Monthly Forecast – August 2017

The natural gas prices ended lower for the month of July after having chopped around for quite some time. As we have mentioned many times in our forecasts, the natural gas prices are driven by the weather and due to this we are seeing the prices move higher in case of good weather and move lower in case of bad weather and in such situations, the prices simply chop around, making it very difficult to trade. We are getting to the close of an important season and so the demand and supply dynamics is likely to change during the month of August.

Natural Gas Prices Move Lower

In the first week of July, we saw the prices move higher on the back of good demand and also based on weather reports that said that the weather is likely to be good during the month of July. This gave a reason for the investors to start buying the gas contracts which helped to push the prices higher and we even crossed the $3 mark and the prices looked very bullish at that point of time.

But there was a reversal in the middle of the month as the weather did not turn out to be as planned and this led to the demand drying up. We also saw the gas inventory data showing a piling up of gas and this meant that the supply far exceeded the demand which caused a correction in the gas prices and the prices began to drop below $3. This set of a change in the short and medium term trend which pushed the prices below the $2.8 region and this downtrend continues into August as of this writing.

Demand Likely to Pick Up

But all is not lost as the low prices due to the lack of demand is likely to act as a blessing in disguise. As we had mentioned earlier, the demand for natural gas depends a lot on the weather and like in every year, the winter would onset pretty soon and hence the prices will have to go up. This is why the trading iof the natural gas is pretty much seasonal as long as the main use of gas continues to be for heating. So, the prices tend to pick up during the cold weather and the prices tend to fall when the weather turns hot, especially in North America where most of the demand for gas is there.

In this year, what should drive the prices even more is the fact that due to the low prices, various companies and factories are likely to pick up more gas and it is also likely that those factories that have the capacity to use either coal or gas, might pick up gas during this period due to the fact that the prices are low. If this demand picks up, then we are likely to see the prices move up in the short and medium term and if the weather begins to cooperate, as is widely expected, we are likely to see the gas prices move even further higher.

Forecast

Looking ahead to the month of August, we expect the natural gas prices to pick up. They are now trading in the $2.8 region and technically, we see a lot of support coming in at the $2.65 region. We believe that the prices may not even get an opportunity to go there as the demand for gas is likely to pick up in the month of August as the winter season is about to begin. The combination of change in weather and increase in demand due to the low prices is likely to drive up the prices of natural gas in August and in such a situation, we are likely to see the prices move through the $3 region pretty comfortably and continue higher.