Natural Gas Price Fundamental Daily Forecast – Increasing Demand, Easing Production Could Further Rally

Natural gas futures rallied to a seven-week high on Tuesday fueled by forecasts of increased demand for air conditioning use into early August at a time when production is expected to ease.

September Natural Gas futures settled at $3.073, up $0.066 or +2.19%.

According to the latest reports, Thomson Reuters is projecting U.S. gas consumption will rise to 78.8 billion cubic feet per day next week from 78.1 bcfd as power generators burn more of the fuel to meet higher cooling demand. The data also projected U.S. gas production in the lower 48 states would slip to 71.7 bcfd on Tuesday, the least in several days.

Over the past 30 days, output has averaged 71.6 bcfd, up from 70.7 bcfd during the same period a year earlier. That, however, was down from the 30-day average of 73.7 bcfd in 2015, when production was at a record high.

In other news, U.S. exports are expected to average 8.2 bcfd this week, up 41 percent from a year earlier.

Forecast

The September futures contract cleared an important barrier at $3.006 on Tuesday. This price is new support. The strong close has put the market in a position to challenge the next major top at $3.114. This price is not only a target, but also the trigger point for another acceleration to the upside. Yesterday’s rally represents a combination of short-covering and aggressive counter-trend buying. In order to sustain the rally today, the buying must continue to be strong enough to shake out the strongly entrenched short-sellers.

Looking ahead to Thursday’s U.S. Energy Information Administration’s weekly inventories report, utilities likely added a smaller-than-normal 43 billion cubic feet (bcf) of gas into storage during the week-ending July 14. This would leave inventories about 6 percent above normal for this time of the year.

This also compares with a 38 bcf increase during the same week a year ago and a five-year average build of 59 bcf.

As far as the weather is concerned, meteorologists forecast temperatures in August would be about average, which follows a slightly warmer-than-normal July.