Natural Gas News: Forecast Turns Bearish as Weather Kills the Rally

July Natural Gas Gives It All Back on Mild Forecasts

July Nymex Natural Gas hit $3.396 early Sunday. That was a direct shot at last week’s high and the intermediate 50% level at $3.387. The breakout failed. Sellers took it straight down to $3.207 and the market is trading around $3.235, down 5.5 cents or 1.67%. The weather forecast killed the rally. Temperatures across most of the country are running in the 60s to 80s through June 4 with only isolated 90s. No heat means no power burn. No power burn means no reason to hold long positions from last week’s run.

July Natural Gas Technical Analysis

July natural gas futures are lower on Monday after failing to follow-through to the upside and reaffirm last week’s rally. Aggressive speculators came in early Sunday, driving the market to $3.396. This was an attempt to breakout over the intermediate 50% level at $3.387 and last week’s high at $3.388.

But they must have forgotten that this is the natural gas market, where professionals sell or short rallies because of the abundance of supply and consistent high production.

The new short-term range is $2.978 to $3.396. Its 50% level at $3.187 is the next downside target. The new long-term range is $2.893 to $3.396 with a mid-point at $3.145.

The main trend is up according to the daily swing chart, but a confirmed reversal top will flip the momentum back to the downside. At this time, we’re still in buy the dip mode because of the uptrend. Buyers will be looking for value and that area is the support cluster formed by the long-term 50% level at $3.145 and the 50-day moving average at $3.140. The main trend will change to down if $2.978 fails as support.

On the upside, a clean breakout over $3.396 will signal a resumption of the uptrend. If this move can gain traction then buyers are likely to set their sights on the 200-day moving average at $3.630 and the long-term 50% level at $3.642. But we’re not likely to get there unless demand picks up due to a hot weather spell.

Comfortable Temps, No Power Burn

Rain and thunderstorms through June 4. Highs in the 60s and 70s across most of the country. A few spots in the 80s. Isolated 90s that do not cover enough square miles to matter. Air conditioning demand is not there.

The biggest metro areas in the country are running comfortable and nobody is cranking up the AC. Power burn has nothing to work with. Gas demand from the utility side is dead. The models past two weeks keep teasing heat but this market has been burned on extended forecasts before. Nobody is buying a weather rally they cannot confirm inside 10 days. Until then the shorts have the better hand.

Permian Gas Has No Off Switch

Every rally in July Nymex Natural Gas runs into the same wall. The Permian Basin does not care where gas prices are. Drillers are chasing crude oil. The gas comes along for the ride. That supply is not voluntary. It does not respond to price signals. It responds to the rig count in the oil patch and that rig count is not dropping.

Lower 48 output is holding near the highs and there is no mechanism to slow it down as long as crude stays profitable. The sell-the-rally crowd knows this. Every pop above $3.30 last week got faded because the supply side of this market does not tighten. It just keeps producing.

Storage Gives Sellers Confidence

The five-year average surplus is still intact. Weekly injections have not missed. There is no supply scare to trade against. Storage looks comfortable heading into June. No urgency to get long. No penalty for waiting. A moderate summer does not touch this cushion. Isolated heat does not either. The only thing that flips the storage story is weeks of 100-degree national heat burning through supply faster than the Permian and Haynesville can replace it. The forecast says that is not this week.

LNG Holds the Floor

LNG feedgas demand from Gulf Coast export facilities is still the one source of consumption keeping this market from falling apart. Strong demand from Europe and Asia keeps U.S. exporters running and that absorbs a portion of the domestic surplus. It is not enough to overcome weak weather and heavy production in the short term but it is the reason every selloff finds a floor. Without the export pull, July Nymex Natural Gas would be testing levels well below $3.00.

What to Watch

The weather forecast and the weekly storage data are the only two things that matter for the rest of the week. The seven-day outlook is bearish and the market is trading accordingly. If heat shows up inside the 10 to 14 day window, buyers will start positioning ahead of it. If it does not, sellers keep the pressure on and profit-taking from last week’s rally continues.

The support cluster at $3.145 to $3.140 is where the bulls need to hold. That is the long-term 50% level sitting right on top of the 50-day moving average. Buyers are going to try to defend that zone because the main trend is still up and the uptrend does not break unless $2.978 fails. On the upside, $3.396 has to go. A clean breakout there reopens the path to the 200-day moving average at $3.630 but that move needs heat behind it.

More Information in our Economic Calendar.