Natural Gas Price Fundamental Daily Forecast – Ripe for Short-Covering Rally into $2.344 to $2.375 Target

Natural gas futures are inching lower early Tuesday despite yesterday’s potentially bullish closing price reversal bottom. Monday’s price action suggests that last week’s sell-off may have been a little overdone with so much of the summer cooling season left on the calendar. The catalyst behind yesterday’s rally was a shift in the forecast toward hotter temperatures later this month and early next month. The new forecast also sparked a spike in prices in the spot market for much of California and the Rockies.

At 07:55 GMT, September natural gas is trading $2.288, down $0.005 or -0.22%.

“Hotter weather trends are the main catalyst for the move higher, although we suspect that balances can improve as well later this week as wind subsides from its recent high levels,” Bespoke Weather Services said. “While cooler windows can mix into the weather pattern, we favor a hotter than normal overall skew into the balance of the summer season, helping to support natural gas prices, at least allowing the $2.25 support level to hold.”

Short-term Weather Outlook

According to NatGasWeather for July 22-28, “Weather systems with showers and cooking will arrive over the central, southern, and eastern US this week, easing highs into the 70s & 80s for much lighter national demand. Hot high pressure will shift over the West with highs of upper 80s to 100s, hottest over the Southwest into West Texas. Temperatures will warm across the southern US and Mid-Atlantic next weekend with highs of upper 80s to 90s gaining. Overall, national demand will rapidly drop from very high this past weekend to only moderate this week.”

Production News

According to Genscape, “Lower 48 dry gas production has rebounded to only slightly below levels observed prior to Hurricane Barry’s formation over the Gulf Coast earlier this month.”

“Total Gulf region output still lags pre-storm levels, but that delta is narrowing on a daily basis. Barry is still having lingering impacts on Gulf of Mexico production,” Genscape added.

“Although the storm strength was relatively low, the storm path through mid-and eastern offshore Louisiana caused significant impacts, as it led the storm through a very concentrated area of production.”

Spot Prices

Spot prices have spiked from much of the Rockies to California since the weekend with heat in the West and cooling in the Midwest and East. SoCal Citygate soared $1.540 to average $3.715, and SoCal Border Avg surged $1.210 to $3.190.

Daily Forecast

Technically, following Monday’s closing price reversal bottom, speculative buyers may try to form a support base inside the retracement zone at $2.296 to $2.253.

If a rally can gain traction over $2.296 then look for it to possibly extend into the next retracement zone target at $2.344 to $2.375.

Given the consistently bearish fundamentals throughout the summer, the September natural gas futures contract would have to take out last week’s high at $2.476 before the major short-sellers would take notice.

Furthermore, unless the hotter temperatures morph into a heat dome for a prolonged period of time, short-sellers will be waiting to take advantage of any near-term rise in prices.