Natural Gas Price Fundamental Daily Forecast – Hedgers Could Allow Market to Hit $2.831 Before New Shorts Take Over

Natural gas futures are trading slightly better early Friday, trying to follow-through to the upside following Thursday’s rally. Yesterday’s move was fueled by a weaker-than-expected injection into storage the previous week.

At 0833 GMT, September Natural Gas futures are trading $2.766, up $0.004 or 0.14%.

The market is also trading inside yesterday’s range which suggests investor indecision and impending volatility. With the storage report out of the way, investors are likely waiting for more information on the weather and production before making their next move.

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.

Further details from the EIA report showed a 20 Bcf injection in the East to 527 Bcf, compared with 624 Bcf a year ago; 23 Bcf build in the Midwest to 524 Bcf, compared with 742 Bcf a year ago; a 1 Bcf addition in the Mountain region to 145 Bcf, compared with 197 Bcf a year ago; a 2 Bcf withdrawal in the Pacific to 257 Bcf, compared to 294 Bcf a year ago; and an 18 Bcf pull in the South Central region to 820 Bcf, compared to 1.122 Tcf a year ago.

Finally, according to the EIA, total inventories are now 103 Bcf less than the five-year average of 630 Bcf in the East, 162 Bcf less than the five-year average of 686 Bcf in the Midwest, 29 Bcf less than the five-year average of 174 Bcf in the Mountain region, 54 Bcf less than the five-year average of 322 Bcf in the Pacific, and 208 Bcf less than the five-year average of 1.025 Tcf in the South Central region.

Forecast

This week’s price action indicates that a few of the weaker short-sellers have been taken out of the market. For week’s investors had shrugged off weak storage numbers, but Thursday’s reaction was different.

I don’t expect the current rally to last very long. In our opinion, it’s just a matter of whether the major players allow prices to rally into the nearest resistance zone at $2.831 to $2.869 before new shorts are placed. Given the current conditions, I don’t think the major short-sellers will be too interested in selling weakness.

Milder weather is on the horizon so I expect to see futures retest the recent lows within the first two weeks of August.