Natural Gas Price Fundamental Daily Forecast – Short-covering Rally Could Drive Market into $2.181 to $2.217

The lack of aggressive counter-trend buying is contributing to the slow trade early in the session. Given the current weather forecast, rising production and low cash prices, gains could be limited.
James Hyerczyk
Natural Gas

Natural gas futures are trading slightly better but coming down off an early session high. The price action is likely being fueled by position-squaring and profit-taking following another steep sell-off to start the week. With the low coming in at $2.029, buyers may have been defending the psychologically important $2.000 level.

At 13:14 GMT, September natural gas futures are trading $2.094, up $0.024 or +1.21%.

Traders blamed Monday’s steep break on a significant drop-off in liquefied natural gas (LNG) feed gas demand. Traders were also responding to reports of increased production.

Bespoke Weather Services noted production reaching new highs and a drop in deliveries to Cheniere Energy Inc.’s Sabine Pass and Corpus Christi LNG terminals.

“It is unclear how long the drop will last, but it is something that can help keep cash prices quite weak until the level of feed gas intake returns back to normal levels,” Bespoke said. Combined with stronger production, “these items are helping to push prices much lower already this morning before even getting to today’s cash trading, raising the possibility that prices can drift down to the $2.00 level in the September contract.”

Short-Term Weather Outlook

According to NatGasWeather for August 6 to August 12, “Hot high pressure will rule the western and southern US with highs of upper 80s to 100s, hottest over the Southwest & Texas. A weak weather system will impact the Midwest and East today, followed by a brief break mid-week before a stronger weather system and cool shot arrives late in the week. Highs across the Midwest and Northeast will be mostly comfortable and in the 70s and 80s. Overall, demand will be moderate across the northern US and high across the western and southern US, but not strong enough to intimidate.”

Daily Forecast

The lack of aggressive counter-trend buying is contributing to the slow trade early in the session. Given the current weather forecast, rising production and low cash prices, gains could be limited.

If there is a surge to the upside late in the session then look for a potential rally into the short-term retracement zone at $2.181 to $2.217. Since the main trend is down, sellers are likely to come in on a test of this area.

Traders are also anticipating a large storage build in this week’s U.S. Energy Information Administration weekly report on Thursday. This could also cap gains.

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