Natural gas futures are inching higher on Monday shortly after the regular session opening after posting a two-sided trade during the early futures session. The price action suggests two things:  One, the market has run into technical resistance, formed by a wall of strong short-sellers, and two, speculators are waiting for an updated weather forecast.

The technical resistance is clear on the daily chart. The main range is $2.745 to $2.134. Its 50% to 61.8% retracement zone at $2.440 to $2.512 is resistance. New short-sellers often reemerge on a test of this zone. Furthermore, long speculators often book profits when this zone is reached.

Today’s intraday high at $2.467 falls inside the retracement zone so we have to conclude that we’re seeing early profit-taking or fresh shorting.

The trading landscape could change later in the session with the release of the updated weather forecasts. Prices should rebound if they show extended heat, or weaken if the forecasts take out the heat currently predicted for later in the week.

At 12:51 GMT, August natural gas futures are trading $2.429, up $0.011 or +0.45%.

Short-Term Weather Forecast

According to NatGasWeather for July 8 to July 14, “Cooler temperatures will impact the northern US the next couple of days with highs of 70s to 80s for light demand. The Southern US remains hot with highs of 90s from Texas to the Southeast, with 100s over the Southwest. Hot high pressure over the southern US will expand to include the northern US mid-week with highs of upper 80s to near 90 degrees Fahrenheit returning from Chicago to New York City. A weak system will provide cooling across portions of the northern US late in the week, while a second system brings heavy showers across the Southeast/Florida. Overall demand, will be moderate Monday into Tuesday, then high the rest of the week.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on July 3 that U.S. supplies of natural gas rose by 89 million cubic feet for the week-ended June 28. The consensus was for a build of 85 Bcf.

Last year, the EIA report showed a 76 Bcf injection for the period, and the five-year average stands at 70 Bcf.

Total stocks now stand at 2.390 trillion cubic feet, up 249 Bcf from a year ago, but 152 Bcf below the five-year average, the government report showed.

Weekly Forecast

The current weather forecast is supportive, but the buying is going to have to be strong enough to overcome $2.440 to $2.512 in order to generate enough upside momentum to change the main top at $2.745.

If the rally stalls inside $2.440 to $2.512 then look for a potential pullback into about $2.301 to $2.261. This won’t necessarily be a bad development if counter-trend buyers show up on a test of this area. They will be trying to establish a secondary higher bottom.

The first rally from a major bottom is usually short-covering. The second rally usually indicate the presence of real buyers. I don’t think we’ve seen that yet.

Rising demand could be supportive this week. According to Refinitiv, demand in the Lower 48 states could rise from 87.4 bcfd this week to 90.1 bcfd next week. This is up from the 90 bcfd forecast early last week.

Looking ahead to this Thursday’s EIA Weekly Storage report, analysts are predicting a build of 67 Bcf for the week-ending July 5. That compares with an increase of 55 Bcf during the same week last year and a five-year average build of 71 bcf for the period.