Natural Gas Price Fundamental Daily Forecast – US Market Turns Bearish on Delay of Freeport LNG Plant Restart

U.S. Natural gas futures are inching higher early Wednesday after posting a dramatic technical closing price reversal top the previous session.

As I wrote on Tuesday, the U.S. market is completely different from the European market in that U.S. professionals tend to prefer playing the short side of the market because of the seemingly abundant supply. I also mentioned the significance of the elusive psychological $10 barrier. Both factors came into play yesterday.

At 01:44 GMT, October natural gas futures are trading $9.236, up $0.081 or +0.88%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $32.00, down $1.79 or -5.30%.

Short-Term Recap: The Anatomy of a Trade

Since August 8, October natural gas futures have been driven higher by worries over supply in Europe. At the bottom, the market was net short, but as the market climbed, the shorts were forced to cover their positions.

U.S. traders weren’t actually getting aggressively long as the market climbed from $7.536, they were liquidating their short positions. When Russia announced a maintenance shutdown of a key pipeline in Germany, European gas prices spiked higher, and speculative buyers took out a few more shorts until the U.S. market ran into resistance as it approached the $10 level.

Essentially, the market reached a top when the last of the weaker shorts was taken out of the market.

Short-Sellers Regain Control

However, Tuesday’s top was formed by more than just renewed short-selling. Traders were also reluctant to chase the U.S. market higher because of worries over more seasonal temperatures, rising production and, most importantly, the news of a further delay in the resumption of initial operations at the Freeport LNG export facility in Texas.

According to reports, Freeport LNG said it expects partial recovery to begin in early to mid-November, not October as originally estimated. The company said it expects to ramp up to sustain 2 billion cubic feet per day production by the end of November.

Short-Term Outlook

In my opinion, the October natural gas futures market turned short-term bearish on Tuesday with the formation of a closing price reversal top at $9.987. Technically, the main trend will change to down on the daily chart if sellers take out $8.860. The first objective of this initial sell-off is $7.669 to $7.121.

Fundamentally, the shifting of the resumption of the Freeport plant from October to late November changed the supply game. Producers now have an extra month to refill the storage bins which will help close the gap between current levels and the 5-year average.

And the gap could be filled rather quickly because production is expected to increase and more favorable weather conditions will lead to lower demand as the summer cooling season comes to an end and the cooler “shoulder season” begins.

So barring an earlier-than-expected winter, there is going to be a lot more natural gas available at the start of the winter heating season than there is today.

Our outlook is bearish over the short-run, but the longer-term bull market is expected to remain intact at this time. This suggests there will be another buying opportunity once the market re-establishes new support.