Natural Gas Price Fundamental Daily Forecast – Bearish, but Strengthens Over $2.885, Weakens Under $2.848

Natural gas prices plunged on Monday as investors reacted to reports of increased production and forecasts of cooler temperatures starting at mid-July. As we mentioned about two weeks ago, the price action strongly suggested that we were no longer in a weather market because a lingering heat dome was not in the picture and that rising production would eventually overcome normal demand.

Essentially, prices fell and could continue to retreat because data showing record-level production combined with expectations for more seasonal weather later in the month offset the large storage deficits and bullish near-term forecasts.

According to NatGasWeather, “production is just too strong for the markets to ignore, aided by reports of weekend production at or exceeding all-time highs, thereby weighing more heavily on prices than hefty deficits and hotter than normal temperatures.”

Genscape, Inc. data showed that lower 48 production appears to have cracked the 80 Bcf/d mark. Following pipeline reported revisions to nominations data, its production team showed volumes hit around 80.05 Bcf/d on June 28 and June 29.

Bespoke Weather Services said it attributed Monday’s sell-off to production reaching “record levels” over the week-end and to a slight cooling in medium-term forecasts.

“Risk remains to the downside moving through the week as well, as though short-term forecasts have very significant heat and power burns remain quite tight to see production as easily canceling those factors out,” Bespoke said. “Longer-term we would expect forecasts to gradually cool through the second half of July, further exacerbating downside in a natural gas market that needs record heat to be sustained to cancel out supply growth.”

Forecast

Monday’s sell-off did some damage to the daily chart by taking out the last three bottoms at $2.896, $2.891 and $2.883 and turning the daily trend to down.

The main range is the May bottom at $2.727 to the June top at $3.043. Its technical 50% to 61.8% retracement zone is $2.855 to $2.848. This zone is currently being tested. It is very important because it is controlling the longer-term direction of the market.

If support at $2.848 fails then prices could continue to plunge to $2.821. Taking out this bottom could trigger an acceleration to the downside with the next major target $2.727.

Moving back above $2.885 and sustaining the move will indicate the return of speculative buyers. This could trigger a short-term, short-covering rally, but it is likely to be met by renewed hedging pressure. So expect gains to be limited.

Furthermore, with the Fourth of July holiday on Wednesday and consumers likely to spend a lot of time outside, we expect to see a drop in demand big enough to put a dent in this week’s numbers.