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James Hyerczyk
Natural Gas

Natural gas is trading lower on Friday after failing to follow-through to the upside following yesterday’s dramatic short-covering rally. We weren’t surprised by Thursday’s rally. After all, as we mentioned yesterday, the fundamentals were a little too bearish, making the market ripe for a counter-trend blast.

Since the narrative is still bearish, professionals may be using the rally to re-up on the short-side. This trading strategy is not a surprise either. The pros have been shorting price spikes for months since there hasn’t been anything in the cards to lead to a prolonged rally.

At 12:16 GMT, September natural gas futures are trading $1.804, down $0.031 or -1.69%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 37 billion cubic feet for the week-ended July 17. Traders are looking for a sub-100 Bcf storage injection for the four consecutive week. The consensus is for a storage injection of 37 Bcf.

Natural Gas Intelligence (NGI) said, “Ahead of the report, a Bloomberg survey found injection estimates ranging from 28 Bcf to 46 Bcf, with a median of 36 Bcf. The average of a Wall Street Journal poll was 35 Bcf, with a low estimate of 28 Bcf and a high of 41 Bcf. A Reuters poll found estimates ranging from 28 Bcf to 46 Bcf and an average of 36 Bcf. NGI estimated a build of 35 Bcf.”

“The forecasts compare with a 44 Bcf storage build in the same week last year and a five-year average increase of 37 Bcf.”

Analysts polled by S&P Global Platts were looking for an increase of 33 Bcf.

Total stocks now stand at 3.215 trillion cubic feet, up 656 billion cubic feet from a year ago, and 436 billion cubic feet above the five-year average, the government said.

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Short-Term Weather Outlook

According to NatGasWeather for July 23-29, “Hot high pressure continues to stretch from California to Texas with highs of mid-90s to 110s, while uncomfortably hot and humid with 90s across the South, Southeast and Mid-Atlantic Coast. The Northwest will cool into the 70s-80s the next few days as a weather system arrives. Cooler expectations will also continue across the Midwest as a weak cool front with showers track through. Heavy showers are expected along the Gulf Coast/Texas Friday-Saturday due to a weak tropical depression. After briefly again becoming hot this weekend across the Great Lakes and Northeast, a cooler trending system will arrive early next week with highs of 70s-80s.”

Daily Forecast

Thursday’s modest storage injection eased COVID-19 demand concerns, but the report is now history. Traders have already moved on to the threat of renewed coronavirus restrictions and the new 15-day forecast.

Despite concerns over virus-related coronavirus demand destruction, there may be just enough heat-related demand available to prevent a retest of the June bottom at $1.583, but not enough to fuel a breakout over the July top at $1.989. This points to a near-term rangebound trade.

It all depends on whether the government can corral the outbreak of coronavirus, and above-average temperatures continue into August.

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

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