Natural Gas Price Fundamental Daily Forecast – Friendly EIA Report, Favorable Weather Pattern Could Drive Prices into $2.831 Over Near-term

Natural gas futures are trading higher early Monday. The rally is being fueled by follow-through buying related to Thursday’s bullish U.S. Energy Information Administration’s weekly storage report and a friendly short-term weather outlook for several key demand areas.

At 0732 GMT, September Natural Gas futures are trading $2.801, up $0.019 or +0.68%.

To recap last week’s key event, on Thursday, the U.S. Energy Information Administration reported that U.S. natural gas in storage increased by 24 Billion Cubic Feet (Bcf) to 2.273 Tcf. The build was much less than analyst estimates calling for a build of about 39 Bcf.

The injection was higher than the 19 Bcf build reported during the corresponding week in 2017 but well below the five-year average addition of 46 Bcf, according to EIA data.

As a result, stocks were 705 Bcf, or 24%, less than the year-ago level of 2.978 Tcf and 557 Bcf, or 20%, less than the five-year average of 2.784 Tcf.

Additionally, the injection was smaller than the 46 Bcf build report the week-ending July 13. According to S&P Global Platts Analytics, gas-fired power generation jumped to year-to-date highs across Texas, the Southeast and the Midwest. The service also said that small dips from onshore production in the Southeast and Texas also provided further downward pressure to this week’s estimate.

Forecast

While last week’s EIA report may be underpinning natural gas prices, it’s the short-term weather forecast that is providing some of the upside momentum.

According to NatGasWeather.com for the period July 30 to August 5, “Weather systems with showers and thunderstorms will track across the Midwest and east-central U.S. this week with comfortable highs of 70s to lower 80s, including into portions of the southern U.S. for lighter demand. Hot upper high pressure continues to dominate the western and southern U.S. with highs of 90s to 110F, hottest from California to Texas for strong regional demand. Late next weekend, hot high pressure will expand across the eastern half of the country with 90s gaining ground for increasing national demand. Overall, demand will be high to moderate.”

For Monday, “The weekend weather data was hotter trending late next weekend with the following week, seeing a stronger ridge over the eastern half of the country, while also remaining hot over the West and South. The data was a little cooler trending August 9-11 by locking better onto a weather system with showers and cooling racing across the Midwest and northeastern U.S. The data was then a touch hotter August 12-15^th, favoring the upper heat dome rebounding over at least portions of the Midwest and East.

Looking ahead to Thursday’s EIA report, the early estimate shows a 40 Bcf to 45 Bcf build for the week-ending July 27. Last year, the EIA recorded an 18 Bcf injection, and the five-year average is a build of 43 Bcf.

Technically, the main trend is up according to the daily chart. The price action suggests there may be enough upside momentum in the market to trigger a rally into a technical retracement zone at $2.831 to $2.869. We expect short-sellers to come in on a test of this zone.