Natural Gas News: Weather Forecast Fails to Lift Market, Bears Regain Control

Rally Stalled at $3.335 and the Bears Took Over

July Natural Gas is trading $3.147, down $0.106 or 3.26% at midday Tuesday after Monday’s run at the $3.396 main top stalled at $3.335. The sellers did not wait around. The pullback broke through minor support at $3.207 and the market is pressing toward the 50-day moving average with the July contract rolling off on Friday.

Monday’s session set up the test and Tuesday answered it. The bulls could not take out the offers above $3.335 and the failure triggered a round of selling that has not found a floor yet.

Daily July Natural Gas Technical Analysis

July natural gas futures are down sharply at the mid-session on Tuesday after yesterday’s attempt to take out the $3.396 main top, stalled at $3.335. The subsequent selling pressure broke through minor support at $3.207 easily with the major pivot at $3.145 and the 50-day moving average at $3.121 the primary downside targets.

Both the short-term and long-term directions hinge upon the strength of the 50-day MA. The market could continue to build a support base above it, but bullish traders are running out of time with the rollover to the August contract taking place on Friday.

A sustained move over the 50-day MA will indicate that buyers are supporting the uptrend, but that they lack the conviction to take out offers and drive prices higher. This conviction will be fueled by a bullish catalyst. But which one? Weather, storage or LNG demand?

On the upside, the key price to clear is the swing top at $3.396. Taking out this level could create the momentum needed to challenge the 200-day moving average at $3.582 or the long-term pivot at $3.642.

The problem with summer rallies is they look good if you only consider the price action. If you measure bull markets in terms of time then you’ll be disappointed. Furthermore, it seems with every rally in natural gas, there’s a fresh seller willing to step in to prevent a runaway. That is, of course, we get a rally like late January/early February, which was primarily fueled by a massive short-squeeze.

Daly August Natural Gas Technical Analysis

August Natural Gas futures are posting a similar pattern as the July futures contract. Both are struggling to overtake the June 1 main top and an intermediate 50% level. For the August contract, the main top is $3.418 and the 50% level is $3.465. On the downside, the August contract’s 50% level is the major support price at $3.173. An elongated support base has formed with swing bottoms at $3.059, $3.001 and $2.974.

The pattern is bullish but without a catalyst, it’s going to be hard to overcome the “Sell the Rally” herd.

Heat Showed Up but Production Kept Pace

Summer cooling demand is running and power burn is pulling more gas. The problem is production has not backed off. Output is high enough to absorb the seasonal lift without creating the tight conditions that would force prices higher. The heat arrived on schedule and the bulls expected it to carry prices through the $3.396 top. Instead the market stalled 6 cents short of the level and rolled over.

Traders on the floor are saying it would take a major sustained heat wave across population-heavy areas to change the picture. Scattered 90-degree days across the South and East are not enough when production is running at these levels. The cooling demand has to overwhelm supply, not just match it, and Tuesday’s 3% decline says the market does not believe that is happening yet.

Short covering from funds that had been pressing the downside through the spring created some of the lift over the past two weeks. That positioning adjustment ran out of momentum at $3.335. Without a fundamental catalyst behind it, the short-covering bounce turned into exactly what the sell-the-rally crowd has been waiting for.

LNG Demand Is Steady but Not Surging

Overseas buyers are still pulling U.S. LNG cargoes and feedgas demand is providing a floor. But steady is not the same as surging. The export volumes are not strong enough on their own to overcome domestic production levels. LNG demand is keeping the bottom from falling out but it is not creating the upward pressure the bulls need to break through resistance.

The Iran situation could change the global LNG picture if tensions escalate and competing supply gets disrupted. So far that has not happened. The market is watching but not trading off it. Until an actual disruption hits a major LNG exporter, the U.S. gas market is going to trade off domestic fundamentals and weather, not Middle East headlines.

What to Watch

Friday’s contract rollover from July to August adds a deadline the bulls do not have time for. The July contract failed at $3.335 and is now pressing toward the 50-day. If the 50-day holds, the base-building pattern stays intact but it transfers to the August contract with the same resistance overhead at $3.418. If it breaks, the elongated support base with bottoms at $3.059, $3.001 and $2.974 is what stands between here and a retest of the spring lows.

Weather forecasts and Thursday’s storage report are the two catalysts that matter this week. A hot forecast revision puts buyers back under the July top before expiration. A bearish storage number confirms that production is keeping pace with demand and the sell-the-rally trade stays in control.

More Information in our Economic Calendar.