Natural Gas Price Fundamental Daily Forecast – Hot High Pressure Setting Bullish Tone

U.S. natural gas futures are trading higher at the mid-session after shrugging off earlier weakness. Today’s rally is being fueled by forecasts calling for hotter weather over the last two weeks of July than previously expected. A decline in production is also helping to lift prices.

At 17:02 GMT, September natural gas futures are trading $7.578, up $0.428 or +5.99%. The United States Natural Gas Fund ETF (UNG) is at $26.09, up $1.16 or +4.65%.

Short-Term Weather Forecast

According to NatGasWeather for July 20-26, “Hot high pressure will rule nearly the entire US the next 7-days with highs of 90s to 100s for very strong national demand besides 80s near the Canadian border.

Temperatures will be hottest from California to Texas, and across the Great Plains with highs of upper 90s to 110 Fahrenheit, while also hot with highs of 90s for major East Coast cities. Overall, strong to very strong national demand going forward.”

US Model is Hotter than European Model Over Next 8-15 Days

For the 8-15-day outlook, NatGasWeather wrote, “Hot high pressure will rule most of the US with highs of 90s to 100s besides 80s across the far northern US for strong national demand, including impressive heat Southwest and Texas. Although, it’s worth mentioning the GFS is 11-12 CDDs hotter compared to the EC model for the 5-15 day forecast period as the EC sees stronger bouts of cooling across the far northern US.”

The divergence between the U.S. and European models could be the source of volatility.

Refinitiv Output, Demand Analysis

Data provider Refinitiv said average gas output in the U.S. Lower 48 states rose to 96.1 bcfd so far in July. That compares with a monthly record high of 96.1 bcfd in December 2021.

On a daily basis, however, output was on track to drop 2.7 bcfd from a six-month high of 97.3 bcfd on Monday to a preliminary five-week low of 94.6 bcfd on Wednesday.

Refinitiv projected average U.S. gas demand including exports would slide from 100.9 bcfd this week to 100.1 bcfd next week as extreme heat starts to ease in some parts of the country.

Short-Term Forecast

Technically speaking, trader reaction to the main 50% level at $7.461 is likely to determine the direction of the September natural gas market into the close on Wednesday.

A sustained move over $7.461 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to extend into the main 61.8% level at $7.965. This price is a potential trigger point for an acceleration to the upside.

A sustained move under $7.461 will signal the presence of sellers. If this generates enough downside momentum then watch for an acceleration into the short-term retracement zone at $6.557 to $5.839.

Look for heightened volatility over the near-term because of the divergence between the US and European weather markets. Both are predicting extreme heat, but the US model is coming in just a little hotter. Prices could rise sharply higher if the European model joins the US. model in predicting more heat.