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James Hyerczyk
Natural Gas

Natural gas futures are edging higher on Tuesday after posting a dramatic and highly volatile rally the previous session. So far, today’s price action has been less-impressive. Earlier in the session, the nearby futures contract reached its highest level since May 12 at $2.169 before pulling back to break even. Additionally, the market is currently testing the key 50% to 61.8% retracement zone that should determine its longer-term direction.

At 15:30 GMT, September natural gas futures are trading $2.142, up $0.041 or +1.95%.

The catalyst currently underpinning the market is an easing of storage availability fears, fueled by a combination of excessive heat in June and July and expectations of more heat in August. Signs of strengthening liquefied natural gas export demand also helped to drive prices higher.

Daily September Natural Gas

Short-Term Weather Outlook

According to NatGasWeather for August 4 through August 10, “An unseasonably strong cool shot continues to bring comfortable highs of 70s to low 80s to the central U.S., Midwest, and Ohio Valley for lighter national demand, aided by heavy rain along the East Coast today as tropical system Isaias tracks northward. Regionally hot conditions continue across the West and southern U.S. with highs of 90s to 100s. Very warm conditions will push into the central and northern U.S. this weekend, while hot most elsewhere besides the Northwest, increasing national demand back to high levels.”

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European Model Update

NatGasWeather also wrote in its daily report, “The overnight European model was again hotter than the rest of the weather data by more than 15 CDD’s. Both the GFS and European models show a very warm U.S. pattern after below normal/cool CDD’s versus normal the next few days. However, the European model remains stronger with the upper ridge then the rest of the data and why it’s forecasting hotter surface temperatures next week.

The European model has been running a bit hot this summer so there’s potential it trends cooler in time. Either that of the GFS and the rest of the data will need to trend hotter. Yesterday’s 30 cent spike wasn’t all about weather and was a massive short-covering rally also strongly fueled by gains in LNG feedgas and weaker over week production.”

Daily Forecast

Simple stated, we’re in a weather driven, short-covering rally.

The main trend is up according to the daily swing chart so there is an upside bias. The trend changes to down on a move through $1.781.

The main range is $2.499 to $1.583. Its 50% to 61.8% retracement zone is $2.041 to $2.149. This zone is controlling the longer-term direction of the market. Currently, the market is testing the upper level at $2.149.

A sustained move over $2.149 could trigger an acceleration to the upside. The daily chart indicates there is no resistance until $2.499.

A failure at $2.149 will signal weak buying but not necessarily new shorting. This could drive the market into $2.041. Since the trend is up, buyers are likely to come in on a pullback into this area.

Even if $2.041 fails, buyers will have another shot at the long side on a pullback into $1.975.

For a look at all of today’s economic events, check out our economic calendar.

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