Natural Gas Price Fundamental Daily Forecast – Cooler Forecast Could Trigger Start of Steep Break Under $2.930

Natural gas futures are trading lower shortly before the regular session opening on Friday after posting a potentially bearish technical closing price reversal top the previous session. Yesterday’s early rally took the market to its highest level since June 28 before sellers stepped in as it neared a pair of main tops at $2.992 and $3.018.

At 0826 GMT, September Natural Gas is trading $2.944, down $0.011 or -0.37%.

The catalyst behind the price action is yesterday’s government storage report. On Thursday, the U.S. Energy Information Administration reported that domestic supplies of natural-gas stockpiles rose by 46 billion cubic feet for the week-ended August 3. Traders were looking for a storage build of 43 to 45 Bcf.

Total stocks now stand at 2.354 trillion cubic feet, down 671 billion cubic feet from a year ago and 572 billion below the five-year average, the government said.

The details of the EIA report show a 23 Bcf injection in the East raised stocks to 575 Bcf, compared with 670 Bcf a year ago; a 27 Bcf build in the Midwest to lift inventories to 579 Bcf, compared with 789 Bcf a year ago; a 2 Bcf addition in the Mountain region to nudge stocks up to 148 Bcf, compared with 202 Bcf a year ago; a 5 Bcf withdrawal in the Pacific to drop inventories to 245 Bcf, compared with 290 Bcf a year ago; and a 1 Bcf pull in the South Central region to drop stocks to 807 Bcf, compared with 1.095 Tcf a year ago.

Forecast

The early price action suggests that investors continue to wrestle with the storage deficit, rising demand and increased production. It also indicates that production seems to be meeting demand, thereby, having a limited effect on attempts to shrink the supply deficit.

The bet that bullish investors are making is that the storage deficit will remain wide at the start of heating season on November 1. This is helping to drive the deferred futures contract in December, January and February higher.

September natural gas bulls could run into trouble if production continues to remain strong, but the weather turns cooler.

The current weather forecast calls for a couple of periods with cooler risks over the next two weeks where cooler weather will try and drive down into the Midwest and pull cooling demand back toward average.

Technically, the first sign of weakness will be a trade through $2.930. If this move is accompanied by rising selling volume, we could see a minimum break over the short-run into at least $2.885, followed by $2.844.