Natural Gas Price Fundamental Daily Forecast – Sustained Move Over $3.025 Means Buying is Getting Stronger

Natural gas futures gapped open early Monday but there was very little follow-through to the upside. The early buying was a reaction to last week’s better-than-expected U.S. Energy Information Administration’s storage report.

At 0630, October Natural Gas futures are trading $3.025, up $0.015 or +0.50%.

Last week, the Department of Energy reported that U.S. drillers will produce more natural gas next year than previously expected as exports rise and gas-fired plants generate more electricity.

The Energy Information Administration also hiked its output forecast by 1.2 percent, or nearly 1 billion cubic feet per day, in its latest Short-Term Energy Outlook released last week. The EIA projected that drillers would turn out 77.34 billion cubic feet a day in 2018, up from its prior estimate of 76.42 bcf per day.

“Forecast record natural gas production in 2018 coincides with an expected rise in electricity generation from natural-gas fired power plants and a 23% increase in U.S. natural gas exports,” EIA Acting Administrator Howard Gruenspecht said in a statement.

The EIA also said the United States will likely become a net exporter of natural gas next year, meaning it will ship out more natural gas than it imports. The shift is already starting:  Natural gas exports exceeded imports in three of the first five months of this year.

Forecasts

Last week’s surge in prices came as a surprise because we’ve been in a weather market and there was no indication that prices would rise so sharply over the short-run. The size of the rally suggests it was a combination of short-covering and aggressive speculation that drove prices higher.

If the upside momentum continues this week then the market could test the most important area on the chart:  $3.131 to $3.142. Taking out this area would do a lot of damage to the psyche of the bearish trader because no one is expecting a rally this late in the summer.

I still think the upside is limited over the near-term and that longer-term investors should be looking as far out as February to take advantage of the developing longer-term bullish fundamentals.

There’s also the possibility that the major short-sellers have allowed this market to move higher so that they could re-short the market at more favorable price levels. We’re likely to find out if this is true if the market gets close to $3.131 to $3.142 later this week.