Natural Gas Price Fundamental Daily Forecast – Testing Key Technical Level at $2.869, Will Hedgers Show Up to Stop Rally?

Natural gas futures are inching higher shortly before the regular session opening on Tuesday. The market is currently testing the top end of the key retracement zone. This suggests the buying is getting stronger and the market may be getting ready to breakout to the upside.

At 1110 GMT, September Natural Gas futures are trading $2.867, up $0.007 or +0.28%.

EIA Fundamentals

Last week, the U.S. Energy Information Administration announced a storage build of 35 Bcf in the week-ended July 27, raising U.S. inventories to 2.308 Tcf. Total stocks are 688 Bcf now below inventories one year ago and 565 Bcf under the five-year historical average.

Short-Term Weather Forecast

According to NatGasWeather for August 7-13:  “Strong upper high pressure has set up over the East where highs will reach the mid-90s into major Northeast cities for another few days. The West will be back to very hot with highs of 90s to 100s, including the Northwest. Weather systems with showers and cooling will track the Midwest and east-central US as the week progresses, then deep into Texas and the South this weekend into next week with highs of upper-70s and 80s, easing high national demand to moderate.”

Forecast

For weeks, speculators had ignored the low levels of weekly injections and the relatively wide storage deficit, thinking that with production at record levels, the deficit would become a non-factor by the end of October. However, this all seemed to change late last week.

Last week’s rally positively affected the nearby futures contract, which reflects concerns about looming hotter temperatures, and the deferred futures contracts, which means traders are worried about having enough supply at the start of the winter heating season.

We are seeing strength early this week due to weather concerns. We could see further strength this week on storage concerns, especially if the U.S. Energy Information Administration’s weekly storage report misses to the downside again, however, weak August seasonality is likely to prevent an extended rally beyond the current retracement zone resistance.

We like the early strength this week, but ultimately all it’s going to do is give hedgers the opportunity to re-short positions at more favorable price levels.

Technically, the market is testing a major 50% to 61.8% level at $2.831 to $2.869. Trader reaction to this zone will set the tone for the rest of the week. We may see further short-covering over $2.869, but record production is likely to prevent a move over the recent tops at $2.992 to $3.018.

A failure at $2.869 today will signal the presence of sellers while a lower close or move under $2.831 may be signs that the high for the month has been reached.