Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest

Natural gas futures are trading at their highest level since July 26 on Tuesday, continuing a rebound that began yesterday following a lower start to the week. A technical bounce in crude oil may be helping to bolster prices. However, the price action also suggests there may have been a shift in the overnight weather forecasts.

At 11:12 GMT, October natural gas futures are trading $8.992, up $0.280 or +3.21%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $30.55, up $0.29 or +0.96%.

Early Pressure to Start the Week

The new week started with natural gas prices being dragged lower by a steep drop in crude oil prices. Rising supplies and forecasts calling for cooler weather also contributed to the early session weakness. However, late in the day, the market rebounded to recover most of those losses into the close. Crude oil prices also bounced from their intraday low, bringing some stability to the natural gas market.

Are the Shorts Getting Nervous?

Despite calls for hotter temperatures throughout the summer and uncertainty in Europe, short-sellers have been building a strong position since early June, helped by an outage at the Freeport LNG plant that made about 2 billion cubic feet (bcf) of gas available for domestic storage. This news helped alleviate concerns about a widening storage deficit heading into the winter heating season.

Additionally, it was reported Friday that gas speculators boosted their net short futures and options positions on the New York Mercantile and Intercontinental Exchanges for a third week in a row to the most since March 2020, according to the U.S. Commodity Futures Trading Commission’s Commitment of Traders report.

The question being asked is, how long will these shorts be able to hold on to their positions if buyers start to run this market through the two main tops at $9.382 and $9.568?

Daily Forecast

The early strength in the market indicates that buyers once again came in the dip following Monday’s early weakness despite calls for cooler weather during the latter part of August.

The price action suggests there may have been a change in the overnight forecasts to the benefit of the bulls although NatGasWeather analysts were warning about the opportunity for extreme heat in the eight- to 15-day period over the West.

With prices approaching a pair of tops at $9.382 and $9.568, and the huge amount of shorts in the market, traders are bracing for heightening volatility especially if some of the weaker short sellers start to run for cover.