Natural Gas Price Fundamental Daily Forecast – Bearish Unless Midday Forecast Calls for New Heat

Natural gas futures are edging lower on Tuesday after posting another loss the previous session. The recent price action suggests long liquidation and aggressive shorting is taking place in reaction to rising U.S. production and expectations of lower demand, both of which are likely to lead to bigger injections going into summer cooling season.

At 13:05 GMT, July natural gas futures are trading $2.392, down 0.011, or -0.33%.

A drop in spot prices is also contributing to the weakness in the futures contract. Offsetting weather patterns seem to be having the biggest influence are prices. The southern U.S. is being blanketed by heat and humidity, while the northern part of the country is enjoying comfortable temperatures.

Bearish Mid-Term Weather Outlook

According to Bespoke Weather Services, a “decisively cooler” weather pattern extending into the middle of June is helping to keep gains capped which helping bearish traders exert increasing downside pressure.

Bespoke is also predicting a little warmth for the current week then much of the country is expected to see a solidly cooler pattern into next week. The weather pattern for week 3 carries lower confidence. The firm said the pattern at the start of the week still does not look promising enough to bring any notable heat back into the eastern half of the country.

NatGasWeather says the latest forecast added a little more demand to the 15-day forecast, but not enough to flip weather sentiment from solidly bearish to anything else. Furthermore, the data was a little hotter early next week across the Southwest and Texas, a little cooler to lose demand late next week, but then hotter again around June 17-18. This is “around the time we are expecting better chances of more intense heat to start showing up in some of the weather maps.”

U.S. Energy Information Administration Weekly Storage Report

The EIA last Thursday reported a much larger-than-expected 114 Bcf injection into U.S. natural gas storage for the week-ending May 24.  A year ago, the EIA reported a 95 Bcf build. The five-year average is for a 97 Bcf injection.

Daily Forecast

The EIA forecast for the week-ending May 31 will be a tricky endeavor due to last Monday’s Memorial Day holiday. We’re likely to see a wide range of forecasts. Early forecasts are calling for a build of 105 Bcf to 108 Bcf. This is down about 20 Bcf from the first forecast issued on May 16.

There is plenty of room to the downside, but oversold conditions make it ripe for a short-covering rally. However, $2.500 is likely to be resistance. Furthermore, there is going to have to be a midday change in the weather forecast to chase the weaker shorts out of their positions.