Natural Gas Price Fundamental Daily Forecast – Could Be Setting Up for Massive Short-Covering Rally

The next major move this week is likely to be determined by whether the short sellers decide to continue to bet on lower prices into September, or if they start to ease out of their short positions, triggering a substantial short-covering rally.
James Hyerczyk
Natural Gas

Natural gas futures are trading higher on Wednesday as traders prepare for the futures contract rollover. That’s what’s driving the market higher, not the weather.

“Weather aside, this week’s price action was expected to be somewhat volatile given the rollover in the Nymex futures curve. The net short position that speculators had been building in recent weeks was seen as a potential catalyst for materials upside before heading demand begins,” according to Mobius Risk Group. “However, Tuesday’s decline, but not full reversal, could indicate that speculative traders are willing to hold onto positions through the final summer month in hopes that early fall brings on one last price collapse.”

The next major move this week is likely to be determined by whether the short sellers decide to continue to bet on lower prices into September, or if they start to ease out of their short positions, triggering a substantial short-covering rally.

At 12:23 GMT, October natural gas is trading $2.216, up $0.024 or +1.09%.

Short-Term Weather Outlook

According to NatGasWeather for August 27 to September 3, “Comfortable conditions will continue across the Midwest, Northeast, and Mid-Atlantic regions as weather systems sweep through every few days with showers for light demand. The West into Texas will be hot with highs of 90s and 100s as high pressure dominates for strong regional demand. Brief cooling will impact portions of the South and Southeast today with highs of 80-85 Fahrenheit but warming back to near 90 Fahrenheit late week. Overall, national demand will be moderate to low across the central and northern US by high over the West into Texas and the South.

Source US Energy Information Administration

Tropical Storm Update

As you can see from the map, the new forecast for Tropical Storm Dorian has it shifting to the north or the East Coast of Florida. At this time it is not expected to enter the Gulf of Mexico. Additionally, note that the natural gas platforms are located primarily in the north to northwest corner of the Gulf of Mexico. They are currently not being threatened.

Hurricanes that hit Florida aren’t usually bullish for natural gas. If anything, they tend to be bearish because power is usually knocked out. Without power, natural gas demand drops at the power plants.

Hurricanes that begin in the Gulf of Mexico are the ones that can threaten natural gas platforms. Keep that in mind throughout Hurricane Season.

As the experts at NatGasWeather put it, “The projected drop in demand will offset any temporary loss of production.”

Daily October Natural Gas

Daily Forecast

Based on this week’s price action, the direction of the October natural gas futures contract on Wednesday is likely to be determined by trader reaction to $2.226.

A sustained move over $2.226 will indicate the presence of buyers. If this creates enough upside momentum then look for a potential surge into $2.273. Taking this out will change the main trend to up and likely trigger a further rally into a retracement zone at $2.278 to $2.332.

A sustained move under $2.226 will signal the presence of sellers. This could lead to a choppy, two-side trade. However, taking out $2.132 could trigger an acceleration to the downside.

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