Natural Gas Price Fundamental Daily Forecast – Short-Covering Fueled by Slight Shift in Weather Forecast

Natural Gas futures are trading higher on Wednesday shortly after the regular session opening. The move is being fueled by profit-taking, short-covering and some aggressive counter-trend buying. The catalysts behind the early strength are technically oversold trading conditions and a slight change in the weather forecasts that showed slightly cooler temperatures this weekend into next, but a little hotter for August 10-14.

At 12:31 GMT, September natural gas is trading $2.171, up 0.034 or +1.64%.

Despite pointing out the subtle changes in the forecast, NatGasWeather clarified its comments by saying the pattern “still isn’t nearly hot enough to impress and maintains a bearish bias due to a barrage of weather systems with showers and cooling forecast to sweep across the Midwest and east-central U.S., including deep into the South.” They further added, “Until the hot upper ridge anchored over the western and central U.S. shifts back across the Great Lakes and East/Southeast the pattern will remain bearish.”

Short-Term Weather Outlook

According to NatGasWeather for July 30 to August 6, “Hot high pressure will rule the West and Plains with highs of upper 80s to 100s, hottest over the Southwest & Texas. Temperatures will be very warm along the East Coast with upper 80s to near 90 degrees Fahrenheit. However, additional weather systems with showers and cooling are expected across the Midwest and east-central US this week with comfortable highs of 70s and 80s. A warm break between weather systems is expected this weekend before additional weather systems with showers and cooling arrive next week. Overall, national demand will be moderate.”

Daily Forecast

Despite the short-covering rally, the tone in the market is still bearish, which means short-sellers will be waiting to pounce on this market once it reaches a value area. The first upside target zone is $2.203 to $2.227. The best area is $2.288 to $2.332. This is highly unlikely since the last main top is at $2.305.

EBW Analytics Group points out that it is important to note the timing of the recent sell-off.

“The current sell-off was triggered in part by weather forecasts calling for record heat to be replaced with temperatures close to historical norms. In this sense, the timing is understandable,” said EBW CEO Andy Weissman. “Importantly, though, the plunge in prices comes at a time when CDDs (Cooling Degree Days) are still high in absolute terms. By the third or fourth week in August, demand is likely to fall off sharply.”

“Further, if current forecasts for much warmer-than-normal weather from mid-September through November validate, weather-driven demand could be exceptionally low this fall. Given this feeble demand, steep further price declines seem likely.”