Natural Gas Price Fundamental Daily Forecast – Warmer Weather Expectations Leading Bullish Sentiment

Natural gas futures are trading nearly flat early Wednesday ahead of the regular session opening and yesterday’s steep 1.28% gain. The price is action is being fueled by expected warmer temperatures and supply concerns.

At 0934 GMT, September natural gas futures are trading $2.893, down $0.004 or -0.14%.

Even though this week’s power burn and production backed off from levels we’ve seen throughout July, speculators increased bets that supply concerns would linger longer-than-expected and warmer weather expected in mid-August would increase bullish sentiments.

According to S&P Global Platts Analytics, U.S. dry gas production fell 1.4 Bcf/d day on day to 79.8 Bcf/d Tuesday, as production dipped in the Rockies and fell 700 MMcf/d. This marks the lowest level dry gas production has seen since June 26, but dry production has averaged 80.56 Bcf/d since that time.

Forecast

The main trend is up on the daily chart. The June to July range is $3.018 to $2.671. Its 50% to 61.8% retracement zone is $2.831 to $2.869. This zone is controlling the price action. Holding above this zone will help generate the upside bias. Additionally, based on the current price at $2.893, the retracement zone is new support.

The record production we’ve seen in the summer months has had little effect on the storage deficit the market has been experiencing since late winter/early spring. This is because the output has been offset by power burn records due to the warmer-than-average summer.

Weather News

According to the National Weather Service, over the next six- to 10-days, the U.S. should see warmer-than-average temperatures for most of the Upper Midwest and Northeast, which is expected to add to the strength the market has experienced lately.

Deferred Futures Contracts

December, January and February futures contracts are all trading above $3.00/MM/Btu for the second consecutive day Tuesday. The front-month is being driven by a jump in the cash market. The deferred months are being driven by speculators betting that the winter heating season will begin with a notable supply deficit.

August tends to start strong, but finish weak-to-lower. At this time, seasonal traders are battling speculators. The seasonal traders believe that current production is strong enough to make up the deficit. Speculators believe that the storage deficit will be not be offset by record output because of the lingering heat.