Natural Gas Price Fundamental Daily Forecast – Counter-trend Rally Possible after EIA Report

Natural gas prices touched its lowest level since November 11, but there was no follow-through selling. The market just consolidated the rest of the session. Traders are waiting for Thursday’s storage data report before making their next move.

The report is likely to generate two outcomes. If it’s bearish, the selling pressure will continue with the November 9 bottom at $2.815 the next likely target. If this price is tested then this will mean the market has wiped out its entire winter rally.

If the report is bullish then look for a short-covering spike. This move will not mean the trend is changing to up, but it will give bearish traders an excuse to book profits. Don’t expect a change in trend to up until a change in the weather increases demand.

Summer has officially started with tremendous heat over the Southwest. However, conditions remain cooler in the Midwest and East.

Late in the week, warm to hot conditions are expected to return to the highly populated Great Lakes area and the East. Temperatures should get back into the 80s to lower 90s, but this shouldn’t be enough to change the trend. Temperatures are also expected to turn cooler rather quickly in the north-central U.S. this weekend and then across the East next week.

What the trade is telling us is that the market is not going to shift to the upside until there is a long, lingering heat pattern. These periodic hot spells are not going to be enough to turn a bearish market, bullish.

Forecast

Traders are going to get the opportunity to react to the latest data from the U.S. Energy Information Administration. Its report on Thursday is expected to show a build of about 56 billion cubic feet in the week-ending June 16.

This will be lower than last week’s 78 billion cubic feet build and last year’s 62 billion. The five-year average rise is 82 billion cubic feet.

A higher build will be bearish for prices. Sellers will try to take the market lower and the remaining longs are likely to continue to reduce their positions. A lower-than-expected build is likely to trigger a short-covering rally, but since it won’t represent a trend, this rally is likely to be met by fresh short-selling.

Because of the prolonged move down in terms of price and time, traders should watch for a possible counter-trend rally due to oversold conditions. In other words, we could see a “sell the rumor, buy the fact” situation.