Natural Gas Price Fundamental Daily Forecast – Testing Value Zone, but Bulls Need Weather-related Help

Natural gas futures are edging higher on Wednesday after hitting a value zone. Although we haven’t seen any evidence of aggressive buying, we suspect we’re seeing some light profit-taking and short-covering following yesterday’s steep sell-off into a potential support zone.

Although a potential support zone has been identified, the market is not likely to rally very much unless there is a catalyst. That catalyst can be the return of hot temperatures and higher demand, lower production, or aggressive position-squaring ahead of Thursday’s weekly government storage report.

At 12:02 GMT, September natural gas is trading $2.306, up $0.020 or +0.87%.

Short-Term Weather Outlook

According to NatGasWeather for July 17 to July 23, “Barry will exit the Ohio Valley and Northeast today with showers ending. Hot high pressure will strengthen over the Midwest to Northeast through the weekend with highs of mid-90s from Chicago to New York City, while also hot with 90s across the southern & central US to drive very strong national demand. The Southwest will be very hot with highs of 100-110s, although comfortable across the Northwest with highs of 70s & 80s. Weather systems with showers and cooling will arrive over the Midwest and East early next week, easing highs back into the 70s & 80s. Overall, national demand will be very high through the weekend then easing.”

Mid-Term Weather Outlook

NatGasWeather also said its Global Forecast System (GFS) and the European models both advertised further cooler trends for the period beginning Monday through July 30, showing high pressure shifting west and increasing the chance of cool shots into the northern and eastern United States.

The midday GFS data “was a touch cooler this weekend into the start of next week but a touch hotter around July 27-28 due to a break between weather systems over the East,” the forecaster said. “Most importantly, the GFS didn’t back off on cooling arriving across the Great Lakes and East next week through the end of July, while also including portions of the South.”

From here, markets will likely focus on when hot high pressure will “build back toward the eastern U.S.” after heat fades early next week, NatGasWeather said, adding that “the latest data shows nothing convincing until potentially early August.”

Production News

“Gulf region production has inched up only slightly since Hurricane Barry moved onshore,” according to Rick Margolin, senior natural gas analyst at Genscape, Inc. “Producers and system operators in the Gulf of Mexico have posted notice that personnel are returning to facilities but that operations will not begin to ramp back up until facility inspections are conducted and completed,” he said.

Daily Forecast

Technical factors may play a major role in the direction of the market today. The main trend is up according to the daily swing chart.

The short-term range is $2.115 to $2.476. Its 50% to 61.8% retracement zone at $2.296 to $2.253 is currently being tested. Trader reaction to this zone will set the tone of the market today. We’re looking for prices to strengthen on a sustained move over $2.296. If this level fails as support then look for increased selling pressure to possibly drive the market into the Fibonacci level at $2.253.