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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are trading higher early Wednesday, following-through to the upside after yesterday’s impressive reversal bottom. Fundamentally, the price action is being driven by weather concerns and the storage deficit. Technically, the daily chart pattern shows a secondary higher bottom is forming. This tends to indicate more short-covering ahead.

At 0750 GMT, September Natural Gas futures are trading $2.730, up 0.11 or +0.40%.

Prices rose on Tuesday as storage concerns and warmer weather forecasts trends for August encouraged speculators to book profits and weak short-sellers to cover losing positions.

The price action suggests that traders are starting to respond to storage concerns following last week’s bullish Energy Information Administration (EIA) inventory report and expectations for another light injection in this week’s report.

Weather Concerns

Bespoke Weather Services said, “Afternoon model guidance similarly confirmed many of the longer-term warmer risks we are seeing later in the first week of August that are expected to carry over into the second week, even though we still see the end of July and first couple days of August holding around to below average cooling demand.

NatGasWeather pointed to midday data showing “a hot ridge building into the East Coast” in early August “but with more data still needing to come on board if the markets are to expect it. Of course, this will only come after a series of weather systems bring showers and cooling to the Midwest, South and east-central U.S. through the middle of next week for regionally lighter demand.”



Early estimates call for a storage injection of 39 billion cubic feet for the week-ending July 20. This will be below last week’s 46 Bcf figure.

The short-term forecast until July 30 is not a factor at this time. Traders are already looking 10-14 days in the future. That is when conditions will get interesting especially if this week’s injection number comes in lighter than expected.

Aggressive speculative buyers came in at $2.685 on Tuesday. This appears to be a successful defense of last week’s main bottom at $2.671.

I don’t expect new short-sellers to press weakness at current levels because this strategy carries too much upside risk at this time of year. Therefore, I am going to assume that the major players are going to let up on the selling pressure just enough to attract fresh speculative buyers. This will then give short-hedgers the opportunity to re-enter at more favorable price levels.

Holding above $2.685 will indicate the presence of buyers. Taking out $2.752 will change the main trend to up according to the daily swing chart. If this move gains enough traction, we could see a surge into at least $2.831. This is the best price for short-sellers to re-enter.

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