Natural gas futures are inching higher on Friday shortly before the regular session opening. The price action indicates that investors are pricing in greater demand over the near-term. It also shows that traders have moved on from Wednesday’s slightly bigger than expected government storage build.

One factor that could be holding back prices is the holiday-shortened week. However, the extremely low prices mean the downside may be limited because major bearish traders are not likely to try to press the market at current price levels. They prefer to sell rallies when a market is this beat up.

As EBW Analytics Group CEO Andy Weissman put it, the natural gas market is caught “between a rock and a hard place.”

This week, demand is likely to decline significantly this week. This could put pressure on the cash market, which could be a drag on futures. However, this news may be outweighed by low prices and approaching heat.

At 09:29 GMT, August natural gas futures are trading $2.298, up 0.008 or +0.35%.

Short-Term Weather Forecast

NatGasWeather says for July 3 to July 9, “A hot US pattern through Saturday with highs of upper 80s to lower 90s from the Great Lakes to the Northeast, including Chicago and New York City. The Southwest will be hottest with highs into the 100s, although the nation’s strongest demand will be across the Southeast and Mid-Atlantic Coast as highs reach the mid-90s, while combining with high humidities to push the Heat Index into the 100s. The Northwest & North Plains will be mostly comfortable with highs of upper 70s to 80s. Demand will ease early next week as cooling arrives across the Midwest. Overall, demand will be high through Saturday, then easing to moderate.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Wednesday that U.S. supplies of natural gas rose by 89 million cubic feet for the week-ended June 28. The consensus was for a build of 85 Bcf.

Bloomberg predicted a median of 83 Bcf. Reuters was looking for an 85 Bcf injection, with a range of 76 Bcf to 94 Bcf. The ICE EIA Financial Weekly Index futures contract settled on Tuesday at 85 Bcf. ION Energy analyst Kyle Cooper called for an 87 Bcf build, and Natural Gas Intelligence’s model predicted a build of 88 Bcf. NatGasWeather was looking for an 80 Bcf build. This is leaning toward the bullish side.

Last year, the EIA report showed a 76 Bcf injection for the period, and the five-year average stands at 70 Bcf.

Total stocks now stand at 2.390 trillion cubic feet, up 249 Bcf from a year ago, but 152 Bcf below the five-year average, the government report showed.

Daily Forecast

Prices are currently straddling a minor retracement zone at $2.201 to $2.308 while investors await an updated weather forecast.

A bullish forecast could trigger a breakout over $2.201 with $2.364 the next potential upside target. A bearish report will likely drive prices through $2.291. This could lead to a test of a short-term retracement zone at $2.249 to $2.222. This zone stopped the selling earlier in the week at $2.217.