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James Hyerczyk
Natural Gas

Natural gas futures are trading higher on Monday as forecasts for hotter temperatures are outweighing concerns over demand due to surging coronavirus outbreaks in the United States.

Weather models showed “a slightly faster return of heat from the Midwest to Northeast next weekend into the following week,” Bespoke Weather Services said on Friday. “This progression generally fits with what we see in analog years when transitioning into a La Nina base state, with the most favored areas for anomalous heat in July being in the Midwest and Northeast.

“We still are not seeing the South involved in terms of above-normal temperatures,” the firm added. But national gas-weighted degree days “are easily projected to run above normal over the next two to three weeks. The pattern should become more conducive for tropical activity in early July as well.”

At 12:10 GMT, August natural gas is trading $1.771, up $0.023 or +1.32%.

Short-Term Weather Outlook

According to NatGasWeather for June 22 -28, “A weather system will track into the Midwest and east-central US Monday-Tuesday with showers and comfortable highs of 60s to low 80s. Around the periphery of these systems over the West, South and East Coast, temperatures will be very warm to hot with highs of 80s to 100s, hottest in California and the Southwest. This central US system will track into the Great Lakes and east-central US Wednesday to Friday for lighter national demand as highs cool into the 70s and 80s. However, hot high pressure will gain ground to cover most of the US next weekend besides the West, where highs of mid 80s to 100s will become widespread for strong national demand. Overall, demand swinging from high to low, then back to high next weekend.”

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U.S. Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas rose by 85 billion cubic feet for the week-ended June 12. That was a little higher than the average increase of 79 billion forecast by analysts polled by S&P Global Platts.

The latest build marked a decline from the 93 Bcf injection a week earlier. It compared with a build of 111 bcf during the same week a year earlier and a five-year average build for the week of 87 Bcf.

Natural Gas Intelligence (NGI) reported that ahead of the report, a Bloomberg poll found injection estimates ranging from 78 Bcf to 87 Bcf, with a median of 84 Bcf. A Wall Street Journal survey produced an average of 85 Bcf, in line with results of a Reuters survey. NGI estimated an 86 Bcf build.

Total stocks now stand at 2.892 trillion cubic feet, up 722 billion cubic feet from a year ago, and 419 billion cubic feet above the five-year average, the government said.

Daily Forecast

The price action suggests the market may be closer to a short-term bottom than previously anticipated. Remember the first up move is likely to be fueled by short-covering. If there is a second rally after a retest of the lows then this will likely be fueled by aggressive counter-trend buyers.

On the daily chart, the short term range is $1.960 to $1.688. If the upside momentum continues then look for a short-term rally into its 50% to 61.8% retracement zone at $1.824 to $1.856. Trader reaction to this zone will determine the next major move.

A failure to overcome $1.824 to $1.856 will indicate the presence of sellers. This is expected since the main trend is down. This could lead to a retest of last week’s low.

Overcoming $1.856 will indicate the buying is getting stronger. This could trigger a breakout to the upside with $1.960 the next likely upside target.

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

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