Natural Gas Price Fundamental Daily Forecast – May Need to Rally to Set Up Next Shorting Opportunity

James Hyerczyk
Natural Gas

Natural gas prices are edging higher on Tuesday shortly before the regular session opening with the move likely being fueled by profit-taking and aggressive speculative buying following the test of a new contract low on Monday. Although there is room for a somewhat meaningful short-covering rally, traders aren’t likely to get too excited about a rally unless buyers can take out $2.305 in convincing fashion.

At 10:32 GMT, September natural gas futures are trading $2.138, up $0.022 or +0.99%.

On Monday, NYMEX front-month natural gas futures settled at a second consecutive three-year low amid forecasts calling for cooler-than-average temperatures, as the August futures contract came off the board.

S&P Global Platts Analytics shows power burns “remaining in the range of Monday’s 38.9 Bcf, at an average of 38.8 Bcf/d over the next eight to 14 days.”

Platts Analytics data also shows, “Total US demand to stay flat over the next eight to 14 days, from Monday’s 73.2 Bcf to an average of 73 Bcf/d, dipping slightly to an average of 72.1 Bcf/d over the next week.”

“Dry production is expected to remain at high levels, hovering at an average of 88.9 Bcf/d over the next eight-14 days, pacing above the month-to-date level of 88.3 Bcf/d,” according to Platts Analytics.

Hedge Funds Bearish

According to the U.S. Commodity Futures Trading Commission’s latest Commitment of Traders report, hedge funds increased bearish bets on Natural Gas futures by 37,238 contracts as of July 23.

Short-Term Weather Outlook

According to NatGasWeather for July 29 to August 3, “Hot high pressure will rule the West and Plains with highs of upper 80s to 100s, hottest over the Southwest & Texas. Temperatures will be very warm along the East Coast with upper 80s to near 90 degrees Fahrenheit. However, additional weather systems with showers and cooling are expected across the Midwest and east-central US this week with comfortable highs of 70s and 80s. A warm break between weather systems is expected next weekend. Overall, national demand will be easing to moderate after being high.”

Intermediate-Term Weather Outlook

According to the National Weather Service, “An expansive area of high pressure that has been bringing pleasant and generally dry weather over much of the eastern U.S. over the last several days will gradually give way to a cold front moving steadily across the Plains and Midwest. Southwesterly flow ahead of the cold front will transport notably hotter and more humid air up across the Ohio and Tennessee Valleys and along the East Coast.”

“Temperatures will be above normal for the next couple of days and will be well into the 90s for many major metropolitan areas,” the NWS said. “…In behind the aforementioned front crossing the central U.S., cool high pressure will be nosing south from Canada, and this will bring below normal temperatures across most of the northern Plains and upper Midwest Monday through mid-week.”

Daily Forecast

Comments I have read like, “NatGas Bulls ‘Running Out of Summer’, or “If the market was going to rally, it would have done so by now,” in my opinion, typically mean the market is oversold and ripe for a short-covering rally. It may not be a weather driven move that triggers the rally, however. It may just be the market runs out of sellers with the August contract coming off the board on Monday. Don’t be surprised by a counter-trend rally.

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