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James Hyerczyk
Natural Gas

Natural gas prices are edging a little higher shortly before the close on Wednesday as short-covering and position-squaring ahead of Thursday’s U.S. Energy Information Administration (EIA) dominated the thinly traded market.

Throughout the week, prices have been pressured by forecasts calling for cooler temperatures, a soft cash market and ongoing weakness in the liquefied natural gas market. None of these factors changed significantly on Wednesday so we have to chalk up the small gain on position-squaring by a few of the weaker shorts.

At 19:46 GMT, August natural gas is trading $1.724, up $0.023 or +1.35%.

Short-Term Weather Outlook

According to NatGasWeather for June 17 to June 22, “A weather system will remain stalled over the East another few days with showers, but also with comfortable highs of 60s to 70s. In between these two systems over the Southwest, Texas, and Plains, upper high pressure will bring hot conditions with highs of 90s to 100s, hottest in the deserts. Temperatures will briefly warm across the East this weekend into the 80s to lower 90s just as a new weather system arrives into the Midwest upstream. Overall, strong demand in the Southwest, Texas and Plains, but mostly light elsewhere.”

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Daily Forecast

Ahead of Thursday’s EIA weekly storage report, the short-term outlook is bearish.

The stalled weather system over the East the next few days, combined with the new system arriving into the Midwest and east-central region late this weekend and next week translate into “a bearish pattern” through next week, NatGasWeather said.

Some traders are building a case for hotter temperatures this summer, but this outlook hasn’t shown up in the August futures contract. This is probably because the slow economic recovery from the coronavirus pandemic is a major drag on demand.

If you want to play for strong summer demand then I suggest you get as far as you can from the nearby futures contract. Supply is just too high for these contracts to benefit from any summer heat.

Meanwhile, bearish comments from Federal Reserve Chairman Jerome Powell didn’t help matters.

“The longer the downturn lasts, the greater the potential for longer-term damage from permanent job loss and business closures,” he said during webcast testimony before members of a Senate committee.

“Until the public is confident that the disease is contained, a full recovery is unlikely,” Powell added.

For a look at all of today’s economic events, check out our economic calendar.

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