Natural Gas Price Fundamental Daily Forecast – Should Resume Rally if High Demand Offsets Increasing Production

Natural gas futures broke sharply for a second day on Tuesday as investors continued to react to short-term weather forecasts calling for a cooling trend early next week.

“Weather forecasts show an upper ridge is expected to strengthen and expand across the southern and eastern United States next week, although recent data showed a weak weather system cutting through the ridge across the north-central part of the country early in the week. This is where the data has been a touch cooler”, NatGasWeather said.

NatGasWeather also says they expect the ridge to expand and strengthen late next week through early July, with widespread temperatures in the upper 80s to 100s making for strong national demand and where both the American and European weather models have been a little hotter in the most recent runs, especially over the Midwest and east-central United States.

With more heat expected in early July, NatGasWeather said it sees no reason why storage deficits will not remain near or above 500 Bcf through the next four weeks, “but whether they can noticeably increase on heat is about to be determined. We see this as being a very good test for how successful record production will be in countering periods of strong summer heat.”

Forecast

Natural gas is trading higher early Wednesday. At 0615 GMT, August Natural Gas is trading $2.930, up 0.025 or +0.86%. Yesterday, the market dropped as low as $2.891 before settling at $2.919.

Here’s how the chart lines up with the weather forecast. Monday and Tuesday’s sell-off was triggered by the introduction of cooler temperatures early next week.

The major range is $2.727 to $3.043. Its 50% to 61.8% retracement zone is $2.885 to $2.848. This area tends to attract buyers. However, Tuesday’s low stopped slightly above this zone at $2.891. Nonetheless, the retracement zone still represents value and we could still see a test of this zone.

If the weather forecast doesn’t change and the hot temperatures return late next week then I expect to see a rally. The best scenario would be for the rally to start following a test of $2.885 to $2.848.

If demand is strong enough to offset increasing production then conditions would be ripe for a retest of this week’s high at $3.043 and perhaps a breakout over this level.

Any indication of lower demand will keep the downside pressure on the market because this will allow increasing production to shrink the supply deficit.