Natural Gas Price Fundamental Daily Forecast – Weather Related Move May Have Run Its Course

Natural gas futures posted another higher-high on the daily chart on Tuesday as the market rapidly advanced toward a pair of tops at $3.102 and $3.127. These prices are very important because they may be the trigger points for an acceleration to the upside.

August natural gas futures settled at $3.064, up $0.015 or +0.49%.

Despite the early strength in the futures market, natural gas closed only marginally higher. This suggests that we’re not in a weather market yet per se. There are forecasts out there indicating warmer weather through mid-July, but they still haven’t boosted demand projections.

The August futures contract closed higher for a fourth straight day for the first time since mid-May, but weeks of stubbornly high inventories, a mild spring and a rise in output have likely made traders a little gun-shy about buying strength. In other words, I don’t think the fundamentals are strong enough at this time to encourage buyers to chase this market higher.

Typically during the bottoming process following a steep sell-off, the first leg up from the bottom is all short-covering. Once this initial move is over, the market pulls back at least 50% of the first rally. If this market is going to move higher over the near-term then buyers are likely to come in on this break.

We’re hoping to get this pullback pattern because buying strength at this time and at these levels on the chart carries too much risk. If we don’t get the pullback then we’ll have to decide if we want to buy a breakout over $3.102 or $3.127.

Forecast

As touched on earlier, the choice at this time for traders is to play for a pullback, or buy strength on a breakout over the recent tops.

Meteorologists forecast the weather in July would be slightly warmer than normal but not quite as hot as last year, prompting power generators to burn a little more gas than usual to meet cooling demand, though less than in 2016. Temperatures in August are expected to be near-normal.

The forecast may not be appealing enough to encourage investors to buy strength so I suspect we’re going to see a short-term pullback.

Inventories are also above normal for this time of year and production is slowly rising. This may also be keeping the bullish traders on the sidelines.