Natural Gas Price Fundamental Daily Forecast – Break into $2.751 to $2.732 Could Attract Buyers

Natural gas futures are trading lower Wednesday, shortly before the regular session opening. The weakness is being fueled by a combination of technical and fundamental factors.

At 1024 GMT, September natural gas futures are trading $2.764, down $0.020 or -0.68%.

Technically, new hedgers stepped in on Tuesday to stop the rally at a major 50% level at $2.831. This did not come as a surprise and had actually been forecast because the retracement zone at $2.831 to $2.869 is a natural resistance zone, and secondly, seasonal factors had us looking for the return of hedgers during the late July/early August time period.

Fundamentally, sellers were reacting to reports of record-level production and the potential for cooler temperatures after mid-month.

The U.S. Energy Information Administration (EIA) on Tuesday updated its monthly production data, showing U.S. natural gas output for May, setting a new all-time record. The EIA said May 2018 production averaged 80.4 Bcf/d (2,491 Bcf total), an 8.6 Bcf/d (12%) increase year/year (y/y) and the highest total recorded by the agency for data going back to 1973.

Short-Term Weather Forecast from Natgasweather.com

For August 1 to August 6:  “Weather systems with showers and thunderstorms will track across the Midwest and east-central U.S. this week with comfortable highs of 70s to lower 80s, including into portions of the southern U.S. for tighter demand. Hot upper high pressure continues to dominate most of the West and South with highs of 90s to 110F, hottest from California to Texas. Hot high pressure will expand across the eastern half of the US with 90s gaining ground for increasing national demand late this week through early next week. Overall, national demand will be moderate increasing to high.”

Forecast

The daily chart pattern and the fundamentals suggest we’re likely in for a wide-rangebound trade with relatively heightened volatility over the next two weeks.

The news about increased production is likely to keep a lid on prices. However, based on the size of the weekly injections this summer, it has done little to offset the current five-year average inventory deficit that currently sits well above 500 Bcf.

In other words, the lingering hot weather in parts of the country have absorbed most of the production increases, leaving the sizable supply deficit.

Normally, this would be perceived as an extremely bullish situation, in my opinion, but short-sellers continue to bet that the weather will cool as we approach the end of October and with production holding at current levels, most of the deficit would shrink ahead of the winter season.

The chart pattern suggests prices may be headed into a technical support range at $2.751 to $2.732. If speculative buyers come in on a test of this area then we could see a rebound rally back to $2.831 to $.2869. This constant trade will continue over the near-term until the fundamentals overwhelming support the sellers or the buyers. Right now, it’s just about evenly balanced.