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James Hyerczyk
Natural Gas

Natural gas is trading lower on Friday as buyers weren’t too impressed with yesterday’s government storage data or the current weather forecasts. The low volume and volatility this week, however, suggest traders still aren’t sure if aggressive counter-trend buyers are building a support base for one last, late summer blow-off rally, or just waiting for another new low.

At 09:57 GMT, September natural gas is trading $2.100, down $0.028 or -1.32%.

Prices rose over 2% on Thursday after a government storage report showed a smaller-than-expected build last week combined with record power demand in Texas and forecasts for hotter weather and greater cooling demand in late August. However, there has been no follow-through to the upside on Friday, which could mean traders have already moved on to next week’s report, and that the return of hot temperatures comes too late in the season to have a major impact of supply.

U.S. Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration said U.S. natural gas in storage rose 55 billion cubic feet (Bcf) during the week-ended August 2. That was below the 50 Bcf build forecast by Reuters. Bloomberg called for a range of 55 Bcf to 63 Bcf with a median of 59 Bcf. Natural Gas Intelligence (NGI) estimated a 59 Bcf injection. Last year, the EIA reported a 46 Bcf injection and the five-year average stands at 43 Bcf.

NatGasWeather said, “Today’s EIA weekly storage report is expected to show a build in supplies of 58-59 Bcf by the most notable surveys, larger than the 5-year average of 43 Bcf. It was hotter than normal over the Northeast and most of the West and Texas, while cooler than normal across the east-central and southeastern US. Our algorithm predicts a build of 59 Bcf, in line with expectations.”

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Short-term Weather Outlook

According to NatGasWeather for August 8 to August 15, “Hot high pressure will rule the western and southern US with highs of upper 80s to 100s, hottest over the Southwest & Texas. The exception will be over the cooler Northwest. A fresh weather system will sweep across the Midwest and Northeast late in the week with showers and highs of only 70s to mid-80s.”

“Temperatures will warm across the northern US early next week as high pressure briefly builds in, followed by another bout of cooling mid and late next week. Overall, demand will be moderate-low across the northern US and high across the western and southern US, but not quite strong enough to intimate.”

Mid-Term Weather Outlook

NatGasWeather says, “The latest weather data showed weather trending a little hotter with upper high pressure forecast to arrive in the East for the August 19-22 period. The Global Forecast System (GFS) model showed especially hot weather, favoring highs in the 90s in multiple regions.”

“Essentially, the back end of the 15-day forecast is likely to be considered hot enough to satisfy, but not the front 10 days,” NatGasWeather said.

Daily Forecast

We’re looking for the choppiness to continue on Friday unless the buyers or sellers decide to take control.

If buyers decide to run the show then they’re likely to spike prices into a short-term retracement zone. If sellers take over then look a possible test of the main bottom at $2.029. If there is a rally, there is nothing to suggest the start of a lengthy move to the upside at this time of year. Furthermore, as we’ve seen recently, any attempts to rally have been met by fresh shorting pressure.

Additionally, sellers may have a hard time taking out the contract low with conviction since there is time for at least one heat-related rally.

Given the short-term range of $2.333 to $2.209, a short-covering rally could take prices into its 50% to 61.8% retracement zone at $2.181 to $2.217.

Looking ahead, we may see larger EIA builds over the next couple of weeks until the upcoming bout of heat tempers storage injections for the week-ending August 23.

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