Natural Gas Price Fundamental Daily Forecast – Short-Covering Rally Could Test $2.902 to $2.919

Natural gas futures are trading higher early Thursday, shortly before today’s weekly U.S. Energy Information Administration’s (EIA) weekly storage report. We could be looking at profit-taking and position-squaring ahead of the numbers.

However, some of the buying may be related to short-covering ahead of the expiration of the September futures contract and speculative buying tied to early forecasts of a weather system that could develop in the Gulf of Mexico over the week-end.

At 1105 GMT, October Natural Gas is trading $2.885, up $0.022 or +0.77%.

Technical factors may also be playing a role in today’s early strength.

The main range is $2.688 to $2.979. Its 50% to 61.8% retracement zone is $2.833 to $2.799. Yesterday’s low at $2.830 drew the attention of buyers who were aggressive enough to turn the market higher for the session after early weakness.

As far as the weather is concerned, reports continued to show cooling demand tapering off by the end of next week. This means that any short-covering rally is likely to be short-lived and viewed as a fresh shorting opportunity for hedgers.

According to NatGasWeather.com, “the overnight weather data came in slightly hotter based on a pattern emerging next week, although the European model was slightly cooler”.

But weather models “still advertise summer heat quickly fizzling after September 7 as upper high pressure that’s dominated for much of this summer finally weakens,” the firm said. It won’t be until after the next three Energy Information Administration (EIA) storage reports that “hefty deficits have the potential to be meaningfully reduced.”

Forecast

Today’s price action will be dictated by the EIA report, due to be released at 1430 GMT. According to the International Exchange (ICE) EIA Financial Weekly Index, traders are looking for a build of 65 Bcf for the week-ending August 24. During the same week last year, 32 Bcf was injected into storage, while the five-year average stands at 59 Bcf.

The ICE End of Storage Index futures contract settled at 3,365 Bcf. Inventories as of August 17 stood at 2,435 Bcf, and about 22% below last year and about 20% below the five-year average.

Technically, the short-term range is $2.974 to $2.830. If today’s upside momentum continues then we could see a rally into its retracement zone at $2.902 to $2.919.

The short-term wildcard is a potential tropical depression developing in the Atlantic near southern Florida. Some forecasts are calling for the system to strengthen if it reaches the warm weather of the Gulf of Mexico. Depending on its strength and direction, it could eventually threaten natural gas production facilities in the north. At this time, it is just something to watch. Some weather models are saying there’s a low chance that it might develop in the Gulf next week.