Natural Gas Price Fundamental Weekly Forecast – Heat Could Return, but Production Will Remain New Record

Natural gas futures finished higher last week following the release of a bullish weekly government storage report. Natural gas futures prices jumped Thursday after a government report showed a smaller-than-expected storage build, setting the tone for a strong finish for the week.

For the week, September natural gas futures settled at $2.853, up $0.071 or +2.55%.

On Thursday, the U.S. Energy Information Administration announced a storage build of 35 Bcf in the week-ended July 27, raising U.S. inventories to 2.308 Tcf. Total stocks are 688 Bcf now below inventories one year ago and 565 Bcf under the five-year historical average.

Intermediate-Term Weather Forecast

The most recent six-to 10-day temperature forecast from the National Weather Service calls for warmer-than-average temperatures for much of the United States, but temperatures have backed off in the Pacific Northwest and Southwest compared with the intense heat the regions faced in late July.

Some bullish traders are banking on a very warm pattern returning across most of the country August 12-17 as upper high pressure restrengthens to dominate most of the country, with highs forecast to reach the mid-80s to 100s in most areas aside from the far northern United States.

Forecast

For weeks, speculators had ignored the low levels of weekly injections and the relatively wide storage deficit, thinking that with production at record levels, the deficit would become a non-factor by the end of October. However, this all seemed to change last Thursday and Friday.

Last week’s rally positively affected the nearby futures contract, which reflects concerns about looming hotter temperatures, and the deferred futures contracts, which means traders are worried about having enough supply at the start of the winter heating season.

Additionally, spot gas prices hit new 30-day highs at nearly 60 pricing locations across the country.

While we support the idea of firm prices over the near-term, we’re not going to flip the switch and call this a bull market at this time. The overall fundamental picture outside of the storage deficit is not especially bullish.

We could see additional strength on storage concerns, especially if the U.S. Energy Information Administration’s weekly storage report misses to the downside again, however, weak August seasonality is likely to prevent an extended rally beyond the current retracement zone resistance.

Furthermore, output is expected to rebound this week following some minor maintenance and the typical beginning-of-month dip. Bearish traders expect to see production remain near record highs. Additionally, there are no foreseeable slowdowns expected.

Technically, the main range is $3.018 to $2.671. Its retracement zone is $2.485 to $2.885. The main trend is down so hedge fund sellers are likely to show up on a test of this zone.