Natural Gas Price Fundamental Daily Forecast – August Futures Expiration May Be Source of Today’s Volatility

Natural gas futures are bouncing back on Wednesday after closing lower yesterday for the first time in eight session. Prices traded lower early in today’s session before turning higher.

This suggests that there may be something in the weather forecasts that lean toward the hotter side. Whether it’s enough to trigger a resumption of the uptrend is likely to be determined when the midday forecasts are released. Until then continue to expect heightened intraday volatility.

At 13:15 GMT, September natural gas futures are trading $3.978, up $0.036 or +0.91%.

Besides the weather forecasts that currently indicate modestly milder temperatures next week, some traders continue to build a case for higher prices due to overall LNG demand and tighter storage inventories. Traders will learn more about this when the government releases its weekly storage figures on Thursday.

Another factor behind the early volatility could be the expiration of the August futures contract at the close of business today. This often prompts two-sided trading with some booking profits, other squaring losing positions and others rolling into the September futures contract.

Short-Term Weather Outlook

The latest forecast from the National Weather Service (NWS) showed intense heat across much of the Lower 48 Tuesday and through most of the trading week. Hot high pressure spans much of the country, generating highs of 90s to well into the 100s, with lofty temperatures from Dallas up to Chicago and over to New York City.

The current heat has been priced into the market for weeks, however. Currently traders are pricing in the new forecast that calls for high temperatures to drop back into the 80s over swaths of the Midwest and East over the coming weekend and early next week, according to NWS. This could pull domestic weather driven-demand back to normal seasonal levels in early August.

Daily Forecast

According to some, the weakness we are seeing this week is just related to the August futures contract expiration and that the fundamentals remain bullish. Today’s rebound rally certainly suggests that possibility.

Bullish traders believe the market is still underpriced and that positive sentiment, driven by strong summer cooling demand, an expectation of heat pushing into September, robust liquefied natural gas (LNG) levels and relatively light production is a bullish formula for higher prices throughout August and perhaps into September.