Natural Gas Price Fundamental Daily Forecast – Decision Time – Chase the Rally, or Play for Short-Term Dip?

Natural gas futures are trading higher on Wednesday, but inside yesterday’s range, suggesting investor indecision and impending volatility. Helping to underpin the market are strong cash market prices, which continued to rise amid strong demand due to intense heat and high humidity.

On Tuesday, prices spiked higher, but came off their intraday highs just as fast. The surge in volatility seemed to surprise traders and analysts, but what do you expect during a weather-driven market.

“There is definitely nothing in either weather or fundamentals data that can explain such crazy price action, as it had the feel of a couple of larger players being forced to stop out, leading to the massive spike higher,” said Bespoke Weather Services. With Tuesday being so chaotic, “we feel being neutral is prudent.”

At 11:59 GMT, September natural gas futures are trading $3.695, up $0.089 or +2.47%. This is slightly lower than yesterday’s multi-year high at $3.784.

Short-Term Weather Outlook

According to NatGasWeather for June 30-July 5:  Very hot high pressure continues over the West with highs of 90s to 110s, although with Seattle and Portland cooling into the upper 80s.

The Midwest, Plains, and Texas will be comfortable to very warm with highs of 70s to near 90 Fahrenheit as weather systems bring heavy showers.

The East will be hot again today with highs of upper 80s to 90s, aiding strong national demand, then cooling late in the week as a slow moving weather system tracks through with showers, thunderstorms, and comfortable highs of 70s and 80s. Overall, high demand through today, then easing to moderate.”

Additionally, “National demand will ease late in the week as the central U.S. weather system slowly tracks into the East, cooling highs into the 70s to 80s,” NatGasWeather said. “However, national demand is still expected to increase July 6-13 to strong levels as upper high pressure strengthens over the southern, central, and eastern U.S. with widespread highs of mid-80s to 100s.”

Early Look at Thursday’s Government Storage Report

Looking ahead to Thursday’s Energy Information Administration (EIA) storage report, Energy Aspects issued a preliminary estimate for a 66 Bcf build for the week-ended June 25. National Gas Intelligence’s (NGI) model predicted a 67 Bcf injection for this week’s report. Last year, EIA recorded a 73 Bcf build for the similar week, and the five-year average injection is 65 Bcf.

Daily Forecast

The introduction of cooler temperatures over the next few days could calm down the price action. Furthermore, yesterday’s spike to the upside and subsequent price drop, suggests the rally may have been fueled by short-covering as many traders still believe it is too early to chase the market higher. This also suggests a short-term dip in prices may be necessary to attract a new round of buyers.

Professional traders are usually reluctant to buy in the summer. They prefer to see extremely tight supplies first then bet on a cold winter. The summer trade is usually dominated by retail speculators who tend to chase markets higher.