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Natural Gas Price Fundamental Daily Forecast – Bullish Traders Playing for Dip into Value Area

By:
James Hyerczyk
Updated: Aug 30, 2022, 08:44 UTC

Natural gas is expected to be underpinned over the near-term because the balance of price risks for gas on a seasonal basis remains high.

Natural Gas

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Natural gas futures are edging lower on Tuesday after a volatile, but slightly better start to the new week. This type of early price action usually suggests a possible shift in the overnight weather forecasts, but since most of that knowledge is controlled by the insiders, we’ll have to wait until perhaps the regular U.S. opening before we’ll know for sure.

The price action also suggests traders are reluctant to chase the market higher at current price levels, and may be waiting for a pullback into a value area.

At 07:34 GMT, October natural gas futures are trading $9.229, down $0.107 or -1.15%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $31.97, down $0.02 or -0.06%.

On Monday, traders were whip-sawed by the September natural gas futures contract expiration and weather models showing surges of heat over the next 1 to 2 weeks. Additionally, “spot gases were also mostly higher on Monday, with West Coast markets netting the most significant increases on yet another heat wave in the region,” according to Natural Gas Intelligence (NGI).

Near-Term Weather Outlook

Besides the September futures contract expiration, a change in the weather forecast over the weekend had traders on edge on Monday. According to NatGasWeather, cooler temperatures are expected to dominate in the coming weeks due to seasonal tendencies, however, one of its major weather models proved too much to ignore.

The Global Forecast System (GFS) added a hefty 15 CDDs for the next 15 days, according to NatGasWeather. The European models also added a few CDDs to the outlook.

Traders Monitoring Storage Deficit

After the release of last week’s Energy Information Administration (EIA) report, supply stood 353 Bcf (12%) lower than the five-year average and 268 Bcf (9%) lower than last year at this time.

Powerhouse Brokerage LLC noted that the average rate of injections into storage is 6% lower than the five-year average so far in the refill season, which runs through the end of October, NGI reported.

If this rate of injections into storage matched the five-year average of 9.8 Bcf/d for the remainder of the refill season, total inventories would reach 3,292 Bcf on October 31. This would be 353 Bcf lower than the five-year average of 3,645 Bcf for that time of year.

Short-Term Outlook

Although we’re looking for a little weakness in the market over the short-run, the market is still expected to be underpinned because the balance of price risks for gas on a seasonal basis remains high, according to EBW. This would likely give traders a reason to buy the dips and shy away from aggressively shorting.

Senior analyst Eli Rubin at EBW said, “If bullish catalysts can ignite upward momentum, substantial gains are possible later this fall.”

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

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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