Natural Gas Price Fundamental Daily Forecast – Is Aggressive Buying or Short-covering Driving the Rally?

Natural gas futures spiked higher on Friday for a third straight day, driven by both short-covering and aggressive buying.

July Natural Gas futures closed at $3.498, up $0.037 or +1.07%.

Traders took out the April 5 top at $3.489 on Friday. Trader reaction to this price today will tell us if the buying is getting stronger, or if the rally last week is being driven by short-covering.

A sustained rally over $3.489 could lead to another acceleration to the upside with the next target the January 26, 2017 top at $3.577, followed by the December 29, 2016 main top at $3.638.

If the selling is strong enough to put in a short-term top at $3.506 then we could see a pullback into a short-term retracement zone at $3.368 to $3.335.

The current price action has laid the groundwork for a nice rally into the summer and perhaps beyond. The buying has been crisp and unexpected because typically at this time, the market drifts sideways to lower into the start of summer.

This year is different from others, however. Traders are watching only the weather. They are focusing on lower production and rising exports.

The prospect for lower production and increased exports coupled with the return of hot weather this summer will be the driving factors of this market over the near-term. Bullish long-term investors are hoping that these three factors lead to lower inventories heading into next winter.

Because of this, I’m sticking with a bullish bias, but my decisions over the short-term will center on buying strength or buying breaks into support. I know from the Commodity Futures Trading Commission data that the hedge and commodity funds have built large long positions. Like they’ve down in crude oil a few times, they will stop buying. This also makes the market susceptible to sharp breaks because they tend to panic on the first bit of bearish news.