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James Hyerczyk
Natural Gas

Natural gas futures are trading higher at the mid-session on Tuesday in reaction to overnight forecasts calling for slightly more heat than originally expected. There were no major shifts in the weather outlook, but just enough to curtail some of the selling pressure left over from Monday’s rout.

At 16:48 GMT, September natural gas is trading $2.191, up $0.035 or +1.86%.

Mixed Outlook for Liquefied Natural Gas

Some of the strength has been attributed to rising liquefied natural gas (LNG) feed gas demand, according Genscape, Inc. The firm’s estimates show LNG feed gas demand as of last week reaching an aggregate 4.5 Bcf/d, the highest level since late June.

“These recent gains have been driven by Freeport LNG’s return to service after no nominations from July 7 to July 29, and a ramp up in deliveries to Corpus Christi LNG,” Genscape analyst Josh Garcia said.

Natural Gas Intelligence (NGI) reported that analysts at Energy Aspects said their recent gauge of the supply/demand balance does not show enough tightness to fully justify the surge in natural gas prices, with inventories still on track to exit the injection season at an estimated 3.9 Bcf. Fundamentals are “not markedly different from what we had anticipated before the start of the month.

The Energy Aspects analysts said recent data suggests the rise in prices has induced additional hedging activity for 2021, activity they see “locking in more production than indicated by 2Q2020 earnings calls and helping producers substantiate production to their lenders in the current environment.”

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Short-Term Weather Outlook

According to NatGasWeather for August 11 to August 17, “Very warm to hot conditions will rule much of the U.S. today with highs of upper 80s to mid-90s, 100s Southwest deserts into California for high national demand. Cooler exceptions continue across the Midwest as weather systems track through with showers and comfortable highs of 70s to lower 80s. The Northeast will be hot Tuesday – Wednesday with upper 80s to lower 90s, then cooling into the 80s Thursday – Saturday to ease national demand. Stronger weather systems will arrive across the Midwest and east-central U.S. early next week with highs of 70s to 80s to drop national demand to moderate.

Daily September Natrual Gas

Short-Term Outlook

Based on the price action the last five sessions, the direction of the September natural gas futures contract over the near-term is likely to be determined by trader reaction to the main Fibonacci level at $2.149.

Bullish Scenario

A sustained move over $2.149 will indicate the presence of buyers. If this can create enough upside momentum then look for a possible breakout over the minor top at $2.284. The daily chart indicates there is plenty of room to the upside with the May 5 top at $2.499 the next major upside target.

Bearish Scenario

A sustained move under $2.149 will signal the lack of buyers or stronger selling pressure. This won’t change the trend to down, but it could lead to a test of the longer-term 50% level at $2.041, followed closely by the short-term Fibonacci level at $1.973. Since the main trend is up, buyers could come in on a test of these levels.

Side Notes

Although the market is holding support, the price action is more indicative of sideways movement rather than bona fide buying. This is probably because the mixed outlook for LNG demand and the changing weather pattern that could lead to a drop in demand.

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

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