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James Hyerczyk
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Natural Gas

Natural gas futures finished slightly lower on Monday as traders continued to probe for support following last week’s dramatic reversal to the downside. Pressuring prices were weather forecasts calling for weaker cooling demand over the next two weeks and expectations of rising production.

On Monday, September natural gas futures settled at $3.222, down $0.079 or -2.39%.

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Spot gas prices were also mostly lower with strong cooling demand on the West Coast due to blistering heat and relatively cooler temperatures on the East Coast. Natural Gas Intelligence’s (NGI) Spot Gas National Average ultimately lost a half-cent to reach $3.075.

Futures Curve Anticipating Hotter Temps, but Weather Forecasts Remain Tame

The Nymex futures curve has lined up nicely in anticipation of the start of summer and hotter temperatures. However, the weather forecasts aren’t on the same page with the momentum traders.

Recent data showed the 15-day outlook started to cool a bit at the end of last week, NGI reported. On Monday, the outlook continued to back off the amount of projected demand expected for the end of June/early July period.

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Bespoke Weather Services Outlook

Bespoke Weather Services said the best heat in the pattern remains in the western half of the country, with models not showing as much risk for the return of eastern heat as they were hinting at last week. Given the lack of eastern ridging in current projections, the risk, according to the firm, is that total gas-weighted degree days may be forecast a little too high into early July and could wind up closer to normal, NGI reported.

“We still suspect July as a whole winds up a little on the hotter side or normal at this time, however,” said Bespoke. “It is hurricane season, so eyes will be on the tropics as well.”

Short-Term Outlook

With traders closely monitoring weather data, NatGasWeather said trading is likely to be volatile this week as the markets ready for the core heat months of July and August. A hotter-than-normal pattern is expected. However, the question remains how much hotter than normal it will be and whether the heat results in storage deficits increasing slowly or at a faster pace, according to the forecaster.

Technically, the key area to watch is a series of retracement levels at $3.198, $3.146 and $3.093. Since the main trend is up, buyers could come in on a successful test of this area.

For a look at all of today’s economic events, check out our economic calendar.
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