James Hyerczyk
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Natural Gas

Natural gas futures are nudging higher early Tuesday following a steep plunge the previous session that drove prices to their lowest level since June 29. The main trend is down on the daily chart, and unless a short-covering rally is strong enough to overcome $1.845, the market seems poised to challenge the June 26 contract low at $1.583 over the near-term.

At 09:35 GMT, September natural gas is trading $1.691, up $0.007 or +0.42%. On Monday, the market hit a low of $1.646.

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Demand woes continued to plague the market again on Monday with coronavirus concerns and worries over poor exports, chasing away buyers. The demand weakness was compounded by a shift to cooler temperatures in the weather forecasts.

Short-Term Weather Outlook

According to NatGasWeather for July 20-26, “Very hot upper high pressure continues to stretch from California to Texas with highs of mid-90s to 110s, while uncomfortably hot and humid across the South, Southeast and East with highs of mid-90s, including NYC. The Northwest is also hot with highs into the 90s in most areas. Cooler expectations this week will be across the Northern Plains/Midwest as weak weather systems/cool fronts track through. Overall, strong to very strong national demand this week with highs of upper 80s to 100s ruling most of the country besides the Northern Plains/Midwest.”


Higher Production Levels Offset High LNG Volumes

Bespoke Weather Services noted that Liquefied Natural Gas (LNG) volumes were up modestly to start the trading week but so too were production levels.

COVID-19 concerns in Europe and Asia, key destinations for U.S. LNG exports, are weighing on demand. According to Natural Gas Intelligence (NGI), “Observers now say that the specter of protracted LNG demand weakness puts the onus on robust heat for the balance of summer to drive cooling demand and ward off containment challenges in the fall.”

Daily Forecast

Unless there is a rapid turnaround in demand and a drop in production, any rally will have trouble gaining traction. The news of the European Union Recovery Fund agreement could pop prices higher if traders think the money will go towards helping to generate LNG export demand, but that’s a long-shot.

Conflicting views of the near-term weather outlook could be a source of volatility.

Bespoke Weather Services said Monday its forecast tilted cooler over the weekend. They also said expectations for the current week have “moved notably cooler compared to what it looked like a week ago.”

“The bias of the modeling has been to forecast too much heat, especially in the Midwest. For this reason, we have undercut the projected GWDD in the modeling even beyond this week. We remain confident in a hotter-than-normal pattern continuing into August, but the model bias remains a glaring one,” Bespoke analysts said.

Meanwhile, NatGasWeather said on Monday, “Hotter than normal U.S. weather patterns are expected into early August with solidly above normal national CDD’s. Accumulated CDD’s so far this summer season are well above normal and will increase to even further above normal over the next 2-weeks as highs of upper 80s to 100s rules most of the country.”

The Heat is Not the Issue

NatGasWeather further added prices were lower on Monday even after the weekend weather data held a hot pattern. “While weather patterns remain bullish, production has increased over the past week. LNG feedgas/exports remain anemic at near 3.5 Bcf/day, and supplies are already stout near 3.2 Tcf with nearly 4 months of builds still to go. So, clearly (there are) some bearish factors weighing more heavily so far today (Monday) than hot weather patterns.”

For a look at all of today’s economic events, check out our economic calendar.

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