Natural Gas Price Fundamental Daily Forecast – Bias to Downside Despite Short-covering Rally

Short-covering and profit-taking helped drive natural gas futures higher for the first day in five on Tuesday. The market was also helped by a sharp rise in crude oil prices which helped offset bearish forecasts for less cooling demand due to anticipated lower temperatures in August.

September Natural Gas futures settled at $2.931, up $0.049 or +1.70%.

Meteorologists forecast temperatures during the month of August will come in near average after a warmer-than-normal June and July.

Natgasweather.com says:  “While weather patterns have been hot the past couple weeks over much of the country, this coming weekend a weather system and accompanied cool shot will sweep down the East Coast with showers. This will bring mostly comfortable conditions over the east-central U.S. for lighter demand. It will still be hot over the West, Central, and South, but national demand will drop to more seasonal levels without hot conditions over the East.

This likely means natural gas demand will be down this week because the cooler weather will be hitting highly populated, high demand areas.

Forecast

Although it is possible that Tuesday’s rally was fueled by aggressive counter-trend buying in front of major bottoms at $2.830 and $2.800, I think most of the move was triggered by profit-taking and short-covering.

Whatever the reason, buyers will have to take out layers of potential resistance levels at $2.934, $2.966, $2.984 and $3.011 before I’ll get excited about the upside especially given the current forecast.

According to Thomson Reuters, data projected U.S. gas consumption is expected to slide to 75.7 billion cubic feet per day (bcfd) next week from 77.8 bcfd this week as the weather moderates and air conditioning demand falls.

Looking ahead to Thursday’s U.S. Energy Information Administration’s weekly inventories report, utilities likely added 34 billion cubic feet of gas into storage during the week-ending July 21, leaving inventories about 4 percent above normal for this time of year. That compared with a 20 bcf increase the same week a year earlier and a five-year average build of 47 bcf.

Given the current weather forecast, I think any rally is likely to be another shorting opportunity. Prices could also fall if crude oil prices retreat since this was a catalyst driving the market higher on Tuesday.