Natural Gas Price Fundamental Daily Forecast – Light Support from Weather-Driven Demand, Slight Production Dip

Mixed fundamentals will put the direction of July natural gas futures back in the hands of the technical traders on Wednesday. Look for a bullish tone on a sustained move over $2.679 with $2.713 a possibility. This could be the trigger point for an acceleration to the upside.
James Hyerczyk
Natural Gas

Natural gas futures are trading nearly flat and in a tight range as traders try to make sense of the current weather forecasts ahead of the U.S. Energy Information Administration’s weekly storage report on Thursday, which could show another triple-digit build.

Technically, the market is in an uptrend on the daily chart and holding above a support level at $2.679. The real question for investors at this time is whether there will be enough buying to drive prices through the next resistance level at $2.713. This is important because the daily chart indicates this could be the trigger point for an acceleration into $2.762.

At 10:39 GMT, July natural gas is trading $2.684, down $0.19%.

Traders are saying that the market is being supported by a combination of weather-driven demand and a small drop in daily production estimates. Mixed spot prices probably helped cap gains.

NatGasWeather said, “The coming pattern is still viewed as having a bearish bias when considering the current streak of larger than normal builds will soon extend to more than 10 weeks,” but now some of those builds are on track to come in lighter than previously expected.

As far a production is concerned, Genscape Inc. reported a “hefty day/day drop” of more than 2.7 Bcf/d in its latest Lower 48 production estimate early Tuesday, which the firm attributed to “widespread shoulder season maintenance events.”

These two factors are currently providing support.

Daily Short-Term Weather Outlook

According to NatGasWeather for May 15 to May 21, “After a cool start today across the Great Lakes and Northeast, conditions will warm the next several days into the upper 60s to lower 80s for much lighter demand. However, temperatures will be getting hotter across Texas, the South, and Southeast as high pressure strengthens with highs of upper 80s to 90s gaining. The West and Plains will see numerous weather systems arrive through next week with heavy showers and thunderstorms. This will cool the Southwest into the comfortable 70s and 80s but with chilly 50s & 60s Northwest. Overall, demand will be moderate to low.”

U.S. Energy Information Administration Weekly Storage Estimate

The early estimate from Energy Aspects is for a 106 Bcf build for the week-ending May 10. They base this forecast on fundamentals that are “essentially flat across the ledger week/week except for residential/commercial demand, which falls by nearly 3 Bcf/d and drives a return to triple-digit builds.”

“The combination of a low absolute storage level to start the season, burgeoning production and lower gas prices has been stoking injections,” Energy Aspects said. “Injections into salt inventories have been particularly high, as storage at such facilities can be ‘turned’ more quickly, allowing capacity holders to take advantage of any potential profit-taking in the spread between cash and nearer-term forwards during peak cooling season.

“…While we anticipate such strong injection activity will help stoke triple-digit storage injections for at least the next four storage reports, the salt push is limited in seasonal scope. As cooling loads build, the prop-up from salt cavern injections will bow out seasonally and take balances back toward double-digit injections.”

Daily Forecast

Mixed fundamentals will put the direction of July natural gas futures back in the hands of the technical traders on Wednesday. Look for a bullish tone on a sustained move over $2.679 with $2.713 a possibility. This could be the trigger point for an acceleration to the upside.

A break back under $2.679 will signal the return of sellers. This could trigger a near-term break back to $2.622 to $2.605 especially if the EIA report is bearish.

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