James Hyerczyk
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Natural Gas

Natural gas futures plunged to a multi-month low last week after a huge government storage build seemingly blew out the last of bullish cowboys on Thursday. The next session was surprisingly calm with no follow-through to the downside.

The price action suggests that investors have already shifted their focus away from the abundant supply to another factor. We think that factor is the weather as more forecasters have adjusted their short-term predictions to account for hotter temperatures during the next 7 to 10 day period.

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Last week, August natural gas futures settled at $1.544, down $0.204 or -11.67%.

NatGasWeather Forecasts

Over the short-run for June 26 to July 2, NatGasWeather says, “It remains mostly comfortable across the east-central US with highs of 70s and 80s, while hot over the West into Texas and the Plains with highs of upper 80s to 100s, hottest in California and Southwest deserts.

The immediate East Coast is also very warm with highs of 80s to locally 90s to aid stronger national demand. Upper high pressure will strengthen over the Southeast this weekend into next week with highs into the 90s, although countered by weather systems over the West and Northeast with mostly comfortable highs of 60s to 80s. Overall, demand will be moderate to high the next several days and then high next week.”

The immediate reaction to the weather forecasts by bearish traders was to stop shorting and to lighten up their bearish positions.

Over the intermediate term, NatGasWeather sees hotter temperatures trending July 2-July 9. The hot weather over the weekend reinforced their view that the coming US pattern should be considered hot enough due to widespread highs of upper 80s and 90’s locally 100s for this week and beyond, where only the Northwest and Northeast corners of the US will be more comfortable due to weather systems.

Meanwhile, “the pattern for the Fourth of July weekend will keep very warm to hot highs of mid-80s to 100s over most of the US besides areas of the West and Northeast.”


US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported Thursday that domestic supplies of natural gas rose by 120 billion cubic feet for the week ended June 19. That was more than the average increase of 107 billion forecast by analysts polled by S&P Global Platts.

Total stocks now stand at 3,012 trillion cubic feet, up 739 billion cubic feet from a year ago, and 466 billion cubic feet above the five-year average, the government said.

Weekly Forecast

Short-covering could be the theme this week as traders are likely to adjust positions in reaction to the hot weather forecasts. The forecasts are calling for widespread heat which could lead to a weeklong rally, however, in order to fuel an exceptionally strong rally, the bulls are hoping for a long-lasting heat dome pattern.

Look for heightened volatility since the weather headlines are likely to dominate the trade.

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

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