Natural Gas Price Fundamental Daily Forecast – Short-Covering Rally Could Fuel Surge into $5.591 – $5.713
Natural gas futures are trading flat early Wednesday after posting a potentially bullish technical reversal to the upside the previous session. The move was fueled by a successful test of a key value area on the daily chart as well as a sharp drop in production.
At 09:04 GMT, December natural gas futures are trading $5.339, down $0.011 or -0.21%.
A confirmation of the chart could trigger a strong short-covering rally, while a failure to confirm will likely lead to a retest of the major support area at $5.269 to $4.956.
Lower Production Fuels Rebound
According to Natural Gas Intelligence (NGI), “Bulls got some ammunition in the latest production figures. Bloomberg data showed output tumbling more than 2 Bcf/d day/day to slightly below 90 Bcf. Wood Mackenzie also estimated production lower day/day, but it put the official tally at around 91 Bcf.”
“In both sets of data, Texas and the New Mexico portion of the Permian Basin posted notable declines, with maintenance events contributing to some of the reductions.”
Short-Term Weather Outlook
NatGasWeather predicts for October 20-26, “One weather system will exit New England, a second will leave the Rockies & track into the Midwest, while a third moves into the West Coast. All three systems will bring highs of 40s to 60s, lows of 20s to 40s. The rest of the U.S. will be nice with highs of 60s to 80s for very light national demand.
The system currently tracking into the Midwest will reach the Great Lakes and Northeast late this week and this weekend for a bump in national demand.
For next week, wet weather systems will impact the West, while nice over the eastern 2/3 of the U.S. Overall, national demand will be low through Friday, then moderate this coming weekend.”
Early Look at Thursday’s Government Storage Report
An early look at Thursday’s Energy Information Administration (EIA) weekly storage report has Energy Aspects issuing a preliminary estimate for an 80 Bcf injection for the week ended October 15.
“A plunge in domestic production and returning feed gas for LNG exports will keep storage activity flat week/week, despite a 2.6 Bcf/d reduction in power” demand, according to the firm.
The five-year average injection is 69 Bcf, while a 49 Bcf build was recorded for the year-earlier period, according to the EIA.
Analysts at Tudor, Pickering, Holt & Co (TPH) are saying that beyond the continued warm forecasts, it has seen limited fundamental catalysts for the recent sell-off.
This tends to support our assessment that buyers will find value inside a retracement zone at $5.269 to $4.956. If they fail to defend this area then prices could collapse under $4.879.
In the meantime, Tuesday’s price action suggests that counter-trend buyers came in at $5.070, triggering a reversal to the upside. If this move creates enough upside momentum then we could see a short-term rally into $5.591 to $5.713, followed by $5.832 to $6.011.