Natural Gas Price Fundamental Daily Forecast – Pressured by Cooler Weather, Looser Power Burns, Increased Production

Natural Gas futures are trading slightly lower early Tuesday after yesterday’s steep plunge reaffirmed the downtrend on the daily chart. Sellers maintained control throughout the session, driving the market toward a key technical area at $2.865 to $2.838.

At 0920 GMT, October Natural Gas futures are trading $2.868, down $0.003 or -0.10%.

Yesterday’s price action came as no surprise because the chart pattern and change in fundamentals had been suggesting for days that the rally had run out of steam. It seemed to be just a matter of time before the lingering longs would give up on a late summer rally.

Driving prices lower on Monday were forecasts for moderate temperatures into early September and expectations that this week’s Energy Information Administration’s weekly storage report would reflect a build that is well above the five-year average.

Weather

Bespoke Weather Services expects temperatures to gradually be less supportive. “Such developments, along with weak seasonality, put at least $2.85 (October Futures) in play this week with downside risk even lower” should this coming Thursday’s EIA storage data disappoint or balances not tighten.

NatGasWeather says as “weather conditions remain generally supportive for the next couple of weeks There were minor changes in the midday data as a rather bullish pattern sets up through around September 7, aided by daytime temperatures that were forecast to return to the mid-90s along the East Coast early this week. That pattern is set to be followed by a stronger-than-normal upper ridge dominating most of the country September 2-7, the forecaster said.

NatGasWeather went on to further say that “The latest Global Forecasting System was a little hotter trending around September 6-9, slowing the weakening of the upper ridge to add a few cooling degree days, it added. However, the data still advertises a much more comfortable U.S. pattern arriving around September 8-10, ‘just with the exact date different in each of the weather models as they try to resolve just how quickly upper high pressure will weaken.”

EIA Estimates

Early guesses for Thursday’s EIA storage report show a build in the low 60s to low 70s range. This is based on increased production, looser power burns and much milder weather.

Forecast

We expect to continue to see downside pressure, however, we may see a technical bounce on a test of $3.865 to $2.833. The strongest area on the chart is a support cluster at $2.838 to $2.833. The technical bounce is likely to be fueled by profit-taking and short-covering. Although the fundamentals have turned bearish, sellers may be reluctant to press the market on weakness so they may allow the market to rally a little in order to get more favorable prices to short.

Despite this potential technical “blip”, the upcoming cooler weather should begin to chip away at the mounting storage deficit, giving the market a solid downside bias.