Natural Gas Price Fundamental Daily Forecast – Cooler Temperatures Limit Market’s Upside

Natural gas futures rose sharply on Wednesday as investors prepared for today’s weekly storage data from the Energy Information Administration (EIA). Shorts covered aggressively when buyers took out the last swing top at $2.846. This turned the trend to up on the daily chart. If the upside momentum continues then we could see a further extension of the rally.

September Natural Gas futures settled at $2.883, up $0.061 or +2.16%.

According to the latest forecast from natgasweather.com, A “weather system with cooler than normal temperatures will continue across the central and northern U.S. into early next week where highs will only reach the 70s and lower 80s. It will be very warm to hot across the western and southern U.S. with highs of upper 80s to 100s, but also with areas of heavy showers and thunderstorms.”

“Overall, demand will be near normal due to much of the northern half of the U.S. being comfortable and lacking summer heat. Overall, national natural gas demand will be moderate.”

According to Reuters, U.S. natural gas storage is expected to end the April-October injection season at a below-normal 3.8 trillion cubic feet (tcf) at the end of October.

That compares with a five-year (2012-16) average of 3.9 tcf and falls well short of last year’s record high of 4.0 tcf at the end of the injection season.

Forecast

Today’s EIA storage report is expected to show a build of about 37 billion cubic feet in the week-ended August 4.

That compares with a gain of 20 billion cubic feet in the preceding week, a build of 29 billion a year earlier and a five-year average rise of 54 billion cubic feet.

According to the EIA, total natural gas storage currently stands at 3.010 trillion cubic feet (tcf). This is 8.5% lower than levels at this time a year ago but 2.9% above the five-year average for this time of year.

Despite the price action, I still think the market is going to have a hard time sustaining this rally. The first objective at $2.872 to $2.899 has been reached. If the short-covering continues then we could see a test of the next target zone at $2.927 to $2.968.

I suspect that the major short sellers are allowing the rally so that they could re-enter a more favorable price levels. This is why I believe the upside is limited.