Natural Gas Price Fundamental Daily Forecast – Shorts “Letting” Buyers Drive the Price Action

After a sluggish start, U.S. natural gas futures managed to close higher on Tuesday. The market was primarily supported by oversold technical conditions since the weather forecast remains largely unchanged from last week.

Heavy selling pressure last week seems to have driven out most of the long traders who lingered in the market too long while waiting for a summer heat wave. However, the selling may have been overdone, setting up the possibility of a meaningful short-covering rally.

September Natural Gas futures closed $2.822, up 0.021 or +0.75%.

Forecast

We can’t control the price action all we can look at is the fundamentals. Based on what I’m seeing, it looks as if the market has priced in the prediction for cooler-than-normal temperatures over the next two weeks. Perhaps, sellers even over shot the objective. Whatever the reason, it looks as if bearish traders are backing away from selling weakness at current price levels, choosing instead to allow the market to rally, perhaps to give them the chance to re-enter the short side at a better price.

Looking at the stats, Thompson Reuters is projecting U.S. gas consumption will edge up to 74.9 billion cubic feet per day (bcfd) from 73.9 bcfd this week.

Reuters data is also showing U.S. exports may average 8.6 bcfd this week, up 39 percent from a year earlier.

Looking ahead to Thursday’s U.S. Energy Information Administration’s weekly storage report, utilities probably added 40 billion cubic feet of gas into storage during the week-ended August 4. This would put inventories about 2 percent above normal for this time of year.

The price action suggests short-covering may drive prices through the swing top at $2.846. This could trigger a further rally into a retracement zone at $2.872 to $2.899. Sellers may come in on a test of this zone.

If $2.899 is taken out with rising volume then the short-covering rally may continue into the next swing top at $2.990.

I don’t think the fundamentals support a major rally. But I do believe that it won’t be the buying that leads the market higher, but rather it will be the bearish traders letting them do so just so they can re-short at a better price level.