Natural Gas Price Fundamental Daily Forecast – Ripe for Short-covering Rally

August natural gas futures posted a volatile session on Thursday, but the market essentially finished flat at the close. General nervousness ahead of Thursday’s U.S. Energy Information Administration’s (EIA) report fueled an intraday short-covering rally before prices plunged then rebounded after the release of the data.

According to the EIA, U.S. natural gas stocks increased by 61 billion cubic feet for the week-ending June 16. This fell inside the estimated range, but came in higher than the consensus estimate of 56 Bcf.

The five-year average for the week is an injection of 82 billion cubic feet, and last year’s storage injection for the week totaled 63 billion cubic feet. Natural gas inventories rose by 78 billion cubic feet in the week-ending June 9.

Stockpiles fell week over week to 10.5% below last year’s level, but remain 8.1% above the five-year average.

Additionally, the EIA reported that U.S. working stocks of natural gas totaled about 2.770 trillion cubic feet, around 207 Bcf above the five-year average of 2.563 trillion cubic feet and 324 Bcf below last year’s total for the same period. Working gas in storage totaled 3.094 Tcf for the same period a year ago.

Forecast

Thursday’s price action suggests that we may have seen the bottom, but we still need further confirmation. The sharp plunge and subsequent intraday rebound suggests the sell-off may have been exhaustion. In other works, it knocked out the last of the stubborn longs, allowing new money to step in at favorable prices.

Of course, the weather will be the final determinant as to whether we’ve hit a temporary bottom.

At this time, temperatures are comfortable across the northern eastern U.S., but remain dangerously hot over the Southwest.

Warm to hot conditions are expected to return to the Great Lakes and East with highs back into the 80’s to lower 90’s. Cooler temperatures are then expected to return.

Hot weather in key demand areas may trigger a few short-covering rallies, but unless we get a lingering, high-pressure dome in these key areas, prices are likely to fluctuate in a range. In order to fuel a meaningful rally, the bullish traders need heat and for it to stick around a while. Otherwise, it’ll be one and done on the spike rallies.