Natural Gas Price Fundamental Daily Forecast – Trade Through $2.388 Could Signal End of Short-Squeeze

Natural gas futures are trading slightly lower on Friday shortly after the regular session opening. The market is trading inside yesterday’s wide range, which suggests investor indecision and impending volatility.

Traders could also be going through a transition period following this week’s surge in prices. They’re trying to decide whether to continue the short-covering rally, or start another break. Traders are essentially digesting “the balance implications of a larger-than-expected weekly inventory injection,” according to Natural Gas Intelligence.

At 13:13 GMT, October natural gas futures are trading $2.433, down $0.002 or -0.15%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 84 billion cubic feet for the week-ended August 30.

Prior to the report, experts were looking for a build in the upper 70s to low 80s Bcf. Bloomberg and Reuters were looking for a 78 Bcf injection, with expectations ranging from 67 Bcf to 90 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled at 76 Bcf. Natural Gas Intelligence’s model predicted an 80 Bcf injection.

The 84 Bcf build, recorded for the week-ended August 30, also comes in higher than both the 64 Bcf injection recorded last year and the five-year average build of 66 Bcf.

Total stocks now stand at 2.941 trillion cubic feet, up 383 billion cubic feet from a year ago, but 82 billion below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for September 7 to September 13, “Comfortable conditions continue across the Midwest & Northeast with highs of upper 60s to 80s for light demand. The southern US will be hot with highs of 90s and 100s as high pressure rules for strong demand. Hurricane Dorian will bring showers to the Mid-Atlantic and Northeast Coast the next few days before exiting. The West will cool this weekend into next week, while the rest of the country remains warmer versus normal. Overall, demand will be high across the southern US and moderate to low across the northern US.

Daily Forecast

The fundamentals are bearish, but technical conditions are still controlling the price action. Production remains high, residential/commercial demand “is at its lowest level in a year,” according to Tudor, Pickering, Holt & Co (TPH).

EBW Analytics Group analysts characterized the “startling gains” recorded since late last month as a “major short squeeze.”

“A pullback is likely soon,” according to EBW. “When, however, is more difficult to judge. Further, the recent run-up is likely to reset market sentiment; even when the retreat begins, prices are likely to remain higher than previously expected.”

We agree with EBW. Typically during a short-squeeze, a market will go up until the weakest short is taken out of the market. Then the big guys come in and the downtrend resumes.

Given Thursday’s technical higher-high, lower-close, or closing price reversal top, we may have seen the top, but we can’t be sure until the chart pattern is confirmed.

A trade through $2.388 will confirm the potentially bearish chart pattern. This could trigger the start of a 2 to 3 day correction with $2.297 to $2.256 the next likely downside target.

Trading through $2.468 will negate the chart pattern and signal a resumption of the uptrend with $2.510 the next likely upside target.