Natural Gas Price Fundamental Daily Forecast – Bearish on Weather; Short-term Oversold

Natural gas futures gapped open on Monday and never looked back. The move attracted enough sellers to drive the market through the November 10, 2016 main bottom at $2.800. This means that sellers have erased the entire winter rally. The next target is the May 2016 main bottom at $2.770.

September Natural gas futures settled at $2.794, down $0.147 or -5.00%.

The size and the pace of the selling on Monday strongly suggests it was fueled by massive liquidation by long traders who finally gave up on the chance of a summer heat-wave induced rally. We won’t know for sure until we see the weekly U.S. Commitment of Traders report. However, I suspect it may show a drop in long positions and a possible rise in short positions.

Fundamentally, the selling was in response to a new weather pattern which shows a weather system with cooling will linger over the East coast through August 5. Without the late summer heat, temperatures will be comfortable enough to trigger a drop in demand.

According to natgasweather.com, for the July 31 to August 6 period, “A weekend weather system with cooling lingers over the East with showers and thunderstorms, resulting in comfortable temperatures to open the week. This system will be steered over the southern U.S. during the middle of the week while fizzling.”

“It will be very hot over the West with California to the Pacific NW seeing highs of mid-90s to 100s.”

“A fresh weather system will arrive over the central, southern, and eastern U.S. late week through the weekend for light demand.”

“Overall, natural gas demand well be Moderate.”

Forecast

With the market hovering near major bottoms and Monday’s sell-off volatile enough to put the market in an oversold position, I wouldn’t be surprised by a technical bounce over the next couple of days. However, like all rallies we’ve seen the past month, they are likely to be met by fresh selling pressure.

Thursday’s U.S. Energy Information Administration’s storage report is expected to show a build of about 22 billion cubic feet in the week-ended July 28.

That compares with a gain of 17 billion cubic feet in the preceding week, a withdrawal of 6 billion a year earlier and a five-year average rise of 44 billion cubic feet.

The fundamentals are bearish, but we still could see rebound due to short-term oversold conditions.