Natural Gas Price Fundamental Daily Forecast – EIA Figure Could Come in Higher Than 5-Year Average of 70 Bcf

Natural gas futures are trading lower early Friday as bearish traders continue to walk the ladder down to at least the May 17 bottom at $2.821, on the way to perhaps the May 7 bottom at $2.727 over the near-term.

At 0915 GMT, August Natural Gas futures are trading $2.834, down $0.003 or -0.11%.

How fast the market gets to our targets will be determined by whether the forecasters stick with their calls for cooler temperatures starting about the middle of the month and whether production will continue at its torrid pace.

According to Bespoke Weather Services, “The market remains in a battle between concerns of lower than normal storage and hot weather through the next couple of weeks and complacency that recent record high production levels will easily bail the market out of any shortages it may see through the winter.”

Looking at the daily chart pattern, it looks as if the next short-term move will be determined by trader reaction to the technical retracement zone at $2.885 to $2.848. This zone represents 50% to 61.8% of the seasonal range of $2.727 to $3.043.

If production levels remain at record highs then it appears the bearish traders will win the battle. Holding below the $2.848 will be the best sign that the bearish traders are still in control.

If buyers are able to recapture $2.885 then this could trigger a short-term, short-covering rally. This may be the result of a combination of a drop in production, and an extension of above normal temperatures beyond mid-July.

Forecast

Estimates for today’s U.S. Energy Information Administration’s storage report point to a build a little higher than the five-year average. Last year, the EIA recorded a 60 Bcf build, and the five-year average is a 70 Bcf injection.

Reuters is looking for a 75 Bcf build for the week-ending June 29. It is calling for a range of 63 Bcf to 81 Bcf.

IAF Advisors is predicting a build of 78 Bcf, while the ICE EIA Financial Weekly Index futures settled a few days ago at a build of 77 Bcf.

To recap the current events. Yes, it’s hot and likely to remain hot into mid-month. This is because of the heat dome dominating most of the country. However, with production running more than 7 Bcf/d higher year/year, bearish traders are showing more of a reaction to the production figure than the bulls to the hefty deficit and hot summer temperatures.

Our conclusion:  Prices can rise if the heat dome continues beyond mid-month. However, the initial phase of any rally is likely to be fueled by short-covering. This means it won’t last and may not even be enough to recapture the psychological $3.00 level. In other words, something has to happen to bring in real buyers, willing to go long. A short-covering rally will only take out weak shorts and add nothing to the chart structure.

The market could turn bullish if production declines and temperatures remain hot beyond mid-month.

Finally, prices could drop sharply under $2.821 if production holds steady or increases, while high temperatures begin to subside or the heat dome begins to break up.