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James Hyerczyk
Natural Gas

Natural gas futures closed higher on Friday, rebounding from yesterday’s reversal to the downside that was fueled by a bigger than expected build in government storage figures. The inability to follow-through to the downside, following Thursday’s weakness, spooked shorts into covering, while a successful test of a technical support level drew the attention of buyers.

On Friday, September natural gas futures settled at $2.255, up $0.090 or +4.16%.

US Energy Information Administration Weekly Storage Report

Natural gas volumes in US underground storage facilities increased in line with the five-year average while the Henry Hub prompt month contract continued to push above prices not seen since early January as the final three months of injection season commence.

U.S. underground natural gas storage inventories increased by 33 Bcf to 3.274 Bcf in the week that ended July 31, according to U.S. Energy Information Administration (EIA) data released August 6.

The injection was larger than the consensus expectations of analysts surveyed by S&P Global Platts, which called for a 27 Bcf build. Responses to the survey ranged from an injection of 20 Bcf to one of 33 Bcf. The injection measured less than the 58 Bcf build reported during the same week last year, but matched the five-year average build of 33 Bcf, according to EIA data.

Storage volumes now stand 601 Bcf, or 22.5%, above the year-ago level of 2.673 Bcf and 420 Bcf, or 15%, higher than the five-year average of 2.845 Tcf.

According to Natural Gas Intelligence (NGI), the latest round of EIA data covering the week ending July 31 was expected to show another 28-33 build.

Bloomberg analysts were looking for a median build of 30 Bcf. Reuters analysts predicted the same. A Wall Street Journal poll averaged 31 Bcf and NGI projected a 30 Bcf build.

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Short-Term Weather Outlook

According to NatGasWeather for August 7 to August 13, “An unseasonably cool condition with highs of 70s to lower 80s continues from the Midwest to Northeast for light national demand. The western and southern U.S. remains hot with highs of 90s to 100s. Very warm conditions will return across the central and northern U.S. this weekend into next week with highs of upper 80s to lower 90s from Chicago to NYC, while hot most elsewhere besides the Northwest, increasing national demand to high levels.”

Daily September Natural Gas

Near-Term Outlook

Based on the price action the last three sessions, the direction of the September natural gas futures contract over the near-term is likely to be determined by trader reaction to the main Fibonacci level at $2.149.

Bullish Scenario

A sustained move over $2.149 will indicate the presence of buyers. If this can create enough upside momentum then look for a possible breakout over the minor top at $2.284.

The daily chart indicates there is plenty of room to the upside with the May 5 top at $2.499 the next major upside target.

Bearish Scenario

A sustained move under $2.149 will signal the lack of buyers or stronger selling pressure. This won’t change the trend to down, but it could lead to a test of the 50% level at $2.041. Since the main trend is up, buyers could come in on a test of this level.

For a look at all of today’s economic events, check out our economic calendar.

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