Natural Gas Price Fundamental Daily Forecast – West is Hot, East is Comfortable for Neutral Demand Outlook

Natural gas futures are trading nearly flat shortly before the regular session opening on Monday. Buyers attempted to follow-through to the upside on the opening, following Friday’s massive short-covering rally, but there was not enough buyers to sustain the move.

This suggests that Friday’s rally may have been a “one-and-done” event triggered by thin end-of-the-week trading conditions and perhaps an overreaction to a big jump in cash market prices in California.

At 10:55 GMT, October natural gas futures are trading $2.502, up $0.007 or +0.28%.

Short-Term Weather Outlook

According to NatGasWeather for August 17 – August 23, “Hot conditions will continue across the western and southern U.S. with highs of 90s and 100s, hottest in California and the Southwest for strong regional demand.

Weather systems with showers and comfortable highs of 70s to 80s will sweep across the Midwest, Mid-Atlantic, and Northeast for light demand.

Overall, strong demand in the western half of the U.S. and moderate for the eastern half versus normal.”

US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas rose by 58 billion cubic feet for the week ending August 7. Total stocks now stand at 3.332 trillion cubic feet, up 608 billion cubic feet from a year ago, and 443 billion cubic feet above the five-year average, the government said.

The government report also showed that broken down by region, the Midwest added 26 Bcf into storage, and the East added 20 Bcf. Mountain and Pacific inventories each grew by less than 5 Bcf, while the South Central region reported a net injection of 5 Bcf, which included a 1 Bcf build into salt facilities and a 5 Bcf build in nonsalts.

Daily Forecast

The lack of follow-through to the upside after Friday’s strong close suggests the move may have been fueled by short-covering rather than new buying. Some traders said the move was triggered by a jump in cash prices in California as the state faces a multitude of issues including excessive heat, wildfires and of course, the rapidly spreading coronavirus.

A weaker trade today will indicate that hedgers have already jumped on the move since it seems to have been a gift for those trying to lock in prices ahead of an end of the summer sell-off.

It’s interesting to note that despite the relatively hot summer, surpluses in supply remain hefty at over +440 Bcf. According to NatGasWeather, national daily accumulated CDD’s since June 1 are running 10% greater/hotter than normal, yet surpluses haven’t improved very much so far this summer, highlighting an oversupplied market.

With the weather this week expected to be split between hot in the west and comfortable in the east, the oversupplied market is likely to continue so prices may be limited on the upside despite the strong upside momentum late last week.

Today’s direction essentially comes down to whether traders will react to the potentially bullish upside momentum, or the potentially bearish fundamentals.

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