Natural Gas Price Fundamental Daily Forecast – EIA Report Should Set the Tone for the Session

Natural gas futures eased a little on Wednesday on forecasts for slightly higher production and a decline in demand. Investors also paired positions ahead of Thursday’s weekly government storage report.

September Natural Gas futures settled at $3.055, down $0.018 or -0.59%.

Traders are also reacting to weather forecasts calling for temperatures in August to remain near normal after a warmer-than-normal June and July.

Longer-Term News

For longer-term investors, analysts expect utilities to stockpile 1.7 trillion cubic feet during the April-October injection season. Relatively low output so far in 2017, increased sales abroad and higher-than-normal cooling demand this simmer are limiting the amount of gas available for storage. That build, which is far below the five-year average of 2.1 trillion cubic feet, would leave inventories at just 3.8 tcf at the end of October, below the year-earlier record of 4.0 tcf and the five-year average of 3.9 tcf.

Additionally, after two unusually mild winters, traders say the possibility of low inventories and normally cold weather from December through February could cause prices to spike later this year.

In early forecasts, meteorologists predict slightly colder-than-normal weather in December and January but a warmer-than-normal February. But with inventories still above normal for this time of year and production slowing rising from last year, speculators have become less inclined to drive prices through the June and May tops.

Forecast

Wednesday’s technical closing price reversal top indicates that speculators lightened up on the long side ahead of today’s U.S. Energy Information Administration report. Traders expect the EIA report to show utilities likely added a smaller-than-normal 32 billion cubic feet (bcf) of gas into storage during the week-ending July 14. This would leave inventories about 5 percent above normal for this time of year.

This would also be the smallest injection for the week since 2012 and compared with a 38 bcf increase during the same week a year earlier and a five-year average build of 59 bcf.

Given the history for this week, it’s going to be difficult for storage to come in at 32 bcf or lower so I’ll give the report some leeway. Also some services are estimating a build of 39 bcf.

If storage comes in over 40 then look for a sell-off. The primary downside target is the retracement zone at $2.957 to $2.927.

If storage comes in 40 then look for a muted response. However, under 32 will be bullish. This could lead to a breakout over $3.114. The primary upside target is the major retracement zone at $3.134 to $3.206.