Natural Gas Price Fundamental Weekly Forecast – Aggressive Short-Covering Could Trigger Move into $2.406

Natural gas futures managed to close higher last week despite the release of a bearish weekly U.S. Energy Information Administration (EIA) storage report. Strength in the cash market propped up futures for much of the week as well as short-covering related to the expiration of the September futures contract and the rollover into the October futures contract.

Last week, October natural gas futures settled at $2.285, up $0.129 or +5.98%.

By the end of the week, traders were monitoring Hurricane Dorian, but not reacting to it since it hadn’t even made landfall. Given its location in the Atlantic Ocean, off the east coast of Florida, it wasn’t in a position to damage any natural gas infrastructure.

Hurricanes that hit Florida tend to have a bearish influence on natural gas prices because of lower cooling demand, while hurricanes in the Gulf of Mexico near Louisiana and Texas tend to have a bullish influence since that is where the natural gas production facilities are.

U.S. Energy Information Administration Weekly Storage Report

The August 29 EIA report was bearish on paper, but that didn’t prevent the huge short-covering rally. The EIA reported a number that was on the high end of the estimates. The EIA reported a 60 Bcf injection but a few Bcf above the five-year average of 57 Bcf, according to the government.

Total working gas in storage as of August 23 stood at 2,857 Bcf, 363 Bcf higher than last year and 100 Bcf below the five-year average.

Short-Term Weather Outlook

According to NatGasWeather for August 30 to September 6, “Comfortable conditions will continue across the Midwest, Northeast, and Mid-Atlantic with highs of upper 60s to lower 80s for light demand. The West into Texas will be hot with highs of 90s and 100s as high pressure rules for strong regional demand. Hurricane Dorian will bring rains to Florida and portions of the Southeast Sunday through Tuesday, while high pressure will expand across much of the rest of the country for a minor bump in national demand. However, the northern and eastern US will cool back to the comfortable 70s late in the week. Overall, national demand will be moderate, increasing to high Monday to Wednesday.

Weekly Forecast

We’re at a critical point in the year when volatility can increase due to seasonality shifts. With the summer cooling season winding down, traders will begin preparing for the winter heating season starting around September 1. Most of the price action is likely to be determined by what the massive amount of short-sellers decide to do with their positions. They can continue to press the market lower, or start taking profits and lifting shorts. This can produce periodic rallies.

A short-covering rally turned the minor trend up last week when buyers took out $2.273. If the shorts continue to cover this week then look for the rally to possibly extend into the next minor top at $2.338. The primary upside target is $2.406 to $2.492. A test of this area could attract new short-sellers.

If there is no follow-through to the upside then look for a pullback into at least $2.178.