Natural Gas Price Fundamental Daily Forecast – Healthy Short-covering Rally, but Needs Weather to Sustain the Move

Natural gas futures popped to their highest level in three weeks on Thursday after data from the U.S. Energy Information Administration (EIA) showed domestic supplies of natural gas rose by 28 billion cubic feet (bcf) for the week-ending August 4. Analysts and traders had priced in a build of 37 bcf.

September Natural Gas futures settled at $2.985, up $0.102 or +3.54%.

According to the EIA, total natural gas in storage currently stands at 3.038 trillion cubic feet, 8.3% lower than levels at this time a year ago but 2% above the five-year average for this time of year.

Forecast

The EIA’s lower-than-expected build may have been a surprise, catching some of the weaker shorts off-guard, but the price action suggests the market is still in the hands of a few major shorts. It’s going to take more than a surprise miss in storage to shake them out of the market. In fact, I think they are embracing the price action because once the buying dries up, it will give them a chance to refresh their short positions.

Having taken out a main top at $2.846 earlier in the week and a series of retracement levels, the objective today is the late July main top at $2.990. This is a critical area because the next target over this price is a pair of main tops at $3.101 and $3.114 and a retracement zone at $3.096 to $3.176.

Without weather to support the rally, I think the upside is limited. Short-covering, buy stops and some light speculative buying will only carry this market so far before it becomes attractive enough for the major short-sellers.

If the hot weather returns then we could see a near-term test of at least $3.101 to $3.114.

According to natgasweather.com, it is expected to be very warm to hot across the western and southern U.S. with highs of upper 80s to 100s. However, weather systems with cooler than normal temperatures will continue across the central and northern U.S. into early next week where highs will only reach the 70s and lower 80s.

“Overall, demand will be near normal due to much of the northern half of the U.S. being comfortable and lacking summer heat.” Therefore, “overall, national natural gas demand will be moderate.”

It looks like short-covering and the surprise EIA storage data has brought the market to its highest level since July 27, but in order to sustain the move, it’s going to have to turn hot.