Natural Gas Price Fundamental Daily Forecast – Strong Short-Covering Rally Nearing $2.278 to $2.332 Retracement Zone

Natural gas futures are trading sharply higher on Thursday after a government report showed a smaller storage build than expected. Although the news drove the market through yesterday’s high and a short-term resistance area, the main trend is still down. However, there is room for a further retracement of the early July to early August trading range.

At 15:34 GMT, October natural gas futures are trading $2.265, up $0.112 or +5.20%.

U.S. Energy Information Administration Weekly Storage Report

At 14:30 GMT on Thursday, the EIA reported that domestic supplies of natural gas rose by 49 billion cubic feet for the week ended August 9. Traders were looking for an average increase of 59 billion cubic feet.

Going into the report, the majority of analysts were looking for the EIA to report an injection in the high 50s Bcf. That compare with last year’s 35 Bcf injection and the 49 Bcf five-year average, according to the EIA.

Bloomberg analysts were looking for an injection range of 45 Bcf to 65 Bcf, with a median of 58 Bcf. Reuters analysts had the same range and median. Natural Gas Intelligence projected a smaller 52 Bcf injection.

NatGasWeather said ahead of the report, “A huge range in national survey averages for today’s EIA weekly storage report from +54 to +61 Bcf, although with the most notable ones around +57-58 Bcf, larger than the 5-year average of +49 Bcf. It was hotter than normal over most of the country besides portions of the Northern Plains and east-central US. Our algorithm predicts a build of +58-59 Bcf. It’s certainly problematic that most of the country was hotter than normal, yet today’s build is still expected to print larger than normal.

Total stocks now stand at 2.738 trillion cubic feet, up 357 billion cubic feet (Bcf) from a year ago, but 111 Bcf below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for August 14 to August 20, “Strong high pressure will dominate the southern US with highs of 90s to 100s, hottest over the Southwest & Texas for strong demand. Weather systems with cooling will sweep across the Midwest and Northeast through the weekend with highs of 70s and 80s for only light to moderate demand. However, hotter temperatures will spread across the northern US next week with highs of upper 80s to lower 90s gaining in coverage. Overall, demand will be moderate-low across the northern US and high across the southern US.

Daily Forecast

Today’s intraday short-covering is strong because most traders were betting on a high injection ahead of the EIA report.

The short-term range is $2.338 to $2.045. Its retracement zone at is $2.191 to $2.226. The short-covering rally took out this zone as well as yesterday’s closing price reversal top at $2.213. This areas could become near-term support.

The main range is $2.510 to $2.045, its retracement zone at $2.278 to $2.332 is the next upside target. Since the main trend is down, sellers could come in on a test of this zone.

The key upside area to watch is a combination of the Fibonacci level at $2.332 and the last main top at $2.338. Sellers are going to try to defend this area.

The main trend will change to up on a trade through $2.338. Aggressive counter-trend buyers may try to blow buy stops above this level. The daily chart indicates there is plenty of room to the upside over this price with $2.510 the next major target.