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James Hyerczyk
Natural Gas

Natural gas futures finished higher last week as traders continued to build-on the week-long support base. However, the inability to close near the high for the week after a huge government storage miss sent prices soaring on Thursday, suggests traders are starting to react to the forecast for cooler temperatures for the end of August.

Last week, October natural gas settled at $2.207, up 0.074 or +3.47%.

U.S. Energy Information Administration Weekly Storage Report

On August 15, the EIA reported that domestic supplies of natural gas rose by 49 billion cubic feet for the week ended August 9. Traders were looking for an average increase of 59 billion cubic feet. That compares with last year’s 35 Bcf injection and the 49 Bcf five-year average, according to the EIA.

Total stocks now stand at 2.738 trillion cubic feet, up 357 billion cubic feet (Bcf) from a year ago, but 111 Bcf below the five-year average, the government said.


Short-Term Weather Outlook

According to NatGasWeather for August 16 to August 22, “Strong high pressure will dominate the southern US with highs of 90s to 100s, hottest from California to Texas for strong demand. Comfortable conditions continue across the Midwest and Northeast through the weekend with highs of 70s and 80s for light demand. However, hotter temperatures will spread across the East Coast and northward late this weekend through mid-next week with highs of upper 80s to lower 90s. Overall, national demand will be increasing to high through mid-next week, then easing.”

Weekly Forecast

The week will start with mixed weather conditions. NatGasWeather points out blistering conditions in Texas and out West, but cooler-trending weather outlooks for the rest of the country. On Friday, they said both the American and European models were cooler overnight, with the latter model making the biggest shift as it lost more than 10 cooling degree days (CDD).

NatGasWeather also sees the hot pattern for much of the United States through the middle of the week, with a cooling trend late in the week through August 30.

“Essentially, weather sentiment remains bullish on the front but bearish biased by late in the week,” NatGasWeather said.

The question for traders this week is whether the call of cooler temperatures has already been priced into the market.

Some traders are already looking ahead to September.

Natural Gas Intelligence reported, “Considerable attention is going to turn to the Labor Day storage week and whether triple-digit injections could be observed in September, or if such builds have to wait until October,” according to Mobius. “A delay to October would neutralize some of the recent market headwinds.”

Mobius went on to say, “However, if attention turns to September and consensus begins to see potential for a sub-325 Bcf cumulative injection, the market will have to weigh the risk of a colder-than-normal October. Last October was near normal, and it has been 10 years since there was a meaningful cold deviation versus normal, so this risk could be dismissed until late September.”

“However, it is certainly worth noting because normal weather was enough to get the market moving directional higher last year.”

On the weekly charts, the upside target is the retracement zone at $2.278 to $2.332. We could see a pop if buyers can take out $2.332. There is plenty of room to $2.510.

On the downside, the key target is $2.159 to $2.132. Prices could linger in this zone. A sustained move under $2.132 will indicate the selling pressure is getting stronger.

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