Natural Gas Price Fundamental Daily Forecast – Early Price Action Suggests Cautious Buying, Change in Forecast

Natural gas futures are inching higher in the overnight session on Monday. Although the market pushed through last week’s high, the move took place without much fanfare. Furthermore, the absence of a gap-higher opening following the weekend suggests a possible shift in the near-term weather forecasts toward less-heat. It could also be an indication that all of the bullish news has been priced into the market and traders are waiting for fresh forecasts due at the mid-session later today.

At 09:53 GMT, September natural gas futures are trading $4.055, up $0.013 or +0.32%.

The problem may be in the seven-day forecast from NatGasWeather, which suggests key demand areas may not get as hot as previously expected. On Friday, the forecaster said it anticipated even stronger demand in the week ahead. It looked for the hot ridge over the west-central United States to expand eastward and cover most of the country with highs of 90s or above. “National demand is expected to surge,” NatGasWeather said Friday. However, its new forecast suggests otherwise, which could be the reason behind the early muted trade.

Short-Term Weather Forecast

According to NatGasWeather for July 26 to August 1, “National demand will be strong this week as hot upper high pressure rules most of the U.S. with highs of 90s to 100s, including 95-100 Fahrenheit in Texas.

Slightly cooler exceptions will occur over the Upper Great Lakes and New England as weak systems produce highs of 80s, while very warm to hot with heavy monsoon showers over the Southwest. A stronger weather system with showers and cooler air will push across the Great Lakes and Northeast late in the week and next weekend with highs of 70s and 80s to ease national demand.”

US Energy Information Administration Weekly Storage Report

The EIA on Thursday reported an injection of 49 Bcf natural gas into storage for the week-ended July16, higher than the mid-40s Bcf print analysts reporting to major surveys had estimated.

Ahead of the report NGI reported that a Reuters’ poll of analysts produced estimates spanning builds of 30 Bcf to 60 Bcf, with a median injection of 45 Bcf. A Bloomberg poll landed at a median injection of 43 Bcf, with estimates ranging from 30 Bcf to 48 Bcf. NGI’s model predicted a 30 Bcf injection.

The EIA number was above a 38 Bcf build in the year-ago period and a five-year average injection of 36 Bcf. Total stocks now stand at 2.678 trillion cubic feet, down 532 billion cubic feet from a year ago and 176 billion cubic feet below the five-year average, the government said.

Daily Forecast

I’m not impressed by the early strength on Monday. Although the market has posted a higher-high for a fifth straight session and could close higher for a sixth consecutive day, we didn’t see a higher gap on the opening, which one should expect in a weather market.

Perhaps traders are afraid to chase the market higher at nearly a three-year high. Perhaps all of the weather news has been discounted. Maybe there is a big short-seller blocking the market. It is also possible that the 10-15 day forecast is coming in below expectations and some traders believe the time is right to trim positions or book profits.

I’m not picking a top because we aren’t sure about the mid-day forecasts, but if they come in bearish to slightly bearish, don’t be surprised by a strong reversal to the downside.