Natural Gas Price Fundamental Daily Forecast – Strengthens Over $2.919, Weakens Under $2.902

Natural gas futures are trading lower early Monday. Volume is light because of a U.S. holiday. Most of the major traders are on the sidelines today so prices could be manipulated by a few large orders. The market is trading lower after a three day rally was fueled by storage concerns ahead of the withdrawal season which begins in November.

At 0652 GMT, October Natural Gas futures are trading $2.888, down $0.028 or -0.96%.

The early price action indicates investors are respecting the 50% to 61.8% retracement zone at $2.902 to $2.919 of the $2.974 to $2.830 trading range. Trader reaction to this zone is likely to determine the direction of the market over the next several days.

A sustained move over $2.919 will indicate the presence of buyers. If this move creates enough upside momentum then look for the rally to extend into a pair of tops at $2.974 and $2.979.

A sustained move under $2.902 will signal the presence of sellers. This could drive the market back into last week’s wide support zone at $2.865 to $2.799. Inside this zone is a pair of retracement levels at $2.838 to $2.833. Since last week’s rally began at $2.830, this zone is the best support.

U.S. Energy Information Administration (EIA) Weekly Storage Report

On Thursday, August 30, the U.S. Energy Information Administration (EIA) reported a 70 Bcf injection into storage inventories for the week-ending August 24, well above the market consensus of a 65 Bcf build. The 70 Bcf build was significantly larger than both last year’s 32 Bcf build for the week, and the five-year average injection of 59 Bcf.

Working gas in storage was 2,505 Bcf as of August 24, according to EIA estimates. Stocks were 646 Bcf less than last year at this time and 588 Bcf below the five-year average of 3,093 Bcf.

Furthermore, the EIA reported a build of 35 Bcf in the Midwest, 27 Bcf in the East, 4 Bcf in the Mountain, and 2 Bcf in the Pacific and South Central regions.

Forecast

Last week’s three day jump of $0.101 may be an indication that buyers are still present and willing to defend the market against a substantial sell-off. They may be betting that the winter heating season will begin with a large storage deficit. This will make the market vulnerable later in the year to any prolonged cold spell.

Until we get a new weather forecast and some estimates for this week’s EIA report, we’re going to let the price action do the talking. A sustained move over $2.919 will indicate strength. A sustained move under $2.902 will signal weakness.