Natural Gas Price Fundamental Daily Forecast – Major Hedgers May Show Up Inside $2.831 to $2.869

Natural gas futures are edging higher early Friday after spiking to the upside the previous session following the release of the weekly government storage report.

At 0554 GMT, September natural gas futures are trading $2.821, up $0.005 or +0.18%.

Natural gas futures prices jumped Thursday after a government report showed a smaller-than-expected storage build.

The U.S. Energy Information Administration announced a storage build of 35 Bcf in the week-ended July 27, raising U.S. inventories to 2.308 Tcf. Total stocks are 688 Bcf now below inventories one year ago and 565 Bcf under the five-year historical average.

Short-Term Weather Forecast

According to NatGasWeather.com for August 3 to August 8, “A cool front with showers and thunderstorms will stall across the east-central U.S. another day with comfortable highs of 70s to lower 80s for lighter demand. Hot upper high pressure continues to dominate most of the West and South with highs of 90s to 110F, hottest from California to Texas, although cooling this weekend over the Northwest & California. Hot high pressure will expand across the eastern half of the U.S. Friday through Tuesday with 90s gaining ground for increasing national demand, then easing last next week as weather systems return. Overall, demand will swing between moderate and high.”

Intermediate-Term Weather Forecast

The most recent six-to 10-day temperature forecast from the National Weather Service calls for warmer-than-average temperatures for much of the United States, but temperatures have backed off in the Pacific Northwest and Southwest compared with the intense heat the regions faced in late July.

Forecast

As we’ve been saying all week, the technical chart pattern and the fundamentals are in sync this week. Earlier in the week, the September natural gas futures contract found resistance at $2.831 to $2.869 when the bearish news came out and it found support at $2.751 to $2.732 when the bullish news was released.

The direction of the market over the near-term will be determined by trader reaction to these zones.

We currently have a tricky and highly speculative situation on our hands. Inventories the last four weeks have come in below expectations and heat has lingered, but the nearby futures contract hasn’t rallied much. This is because the major hedgers aren’t too worried about the storage deficit at this time of the year because they believe that cooler weather is coming and with that lower demand. At the same time, they believe that record production will then shrink the storage deficit ahead of the winter season that begins on November 1.

The rally we are witnessing is being fueled by aggressive hedge fund buying driving out the weaker short-sellers. These buyers are betting on a warmer-than-average August to hold demand steady and offset the production rises.