Natural Gas Price Fundamental Weekly Forecast – Hot High Pressure May Lead to Short-covering Rally

Natural gas futures took a hit last week as a change in the weather pattern over the next two weeks suggested lower demand. The price action suggests that seasonal speculators didn’t believe the weather forecasts from the spring which called for a warm summer, but not as hot as last year. These speculators are paying for their decision to buck the trend and follow the seasonal tendency by being forced out at multi-month lows.

August Natural Gas futures settled the week at $2.864, down $0.171 or -5.63%.

According to the U.S. Energy Information Administration (EIA), U.S. natural gas stocks increased by 72 billion cubic feet for the week-ending June 30. Traders were looking for a storage injection of about 63 bcf.

The EIA report also showed the five-year average for the week is an injection of 66 bcf, and last year’s storage injection for the week totaled 39 bcf. This was attributed to last year’s hot Fourth of July week-end.

The EIA also reported that stockpiles fell week over week to 9% below last year’s level, but remain about 6.9% above the five-year average.

Additionally, according to the EIA, U.S. working stocks of natural gas totaled about 2.888 trillion cubic feet, around 187 bcf above the five-year average of 2.701 tcf and 285 bcf below last year’s total for the same period. Finally, working gas in storage totaled 3.173 Tcf for the same period a year ago.

Forecast

Despite the bearish report on Friday and the lower close, the inability to take out the low earlier in the week at $2.832 and the November 9 main bottom at $2.815 suggests that aggressive counter-trend buyers may be coming in to support the market. Because of this price action, we’re going to be looking for additional buying early next week.

Helping to support the idea of a short-term, short-covering rally is the latest weather report. It indicates that domestic demand for natural gas in the week ahead is expected to be high. This is because a few new hot high pressure systems are expected to dominate the western, central and southern United States with highs ranging from the upper 80s to the lower 100s.

The high heat is expected to miss the highly populated Great Lakes area, but it could spread into small, but densely populated areas of the northwestern and northeastern parts of the country.

A short-covering rally could take place if enough buyers come in to defend $2.832 to $2.815. This may be enough to scare a few of the weaker shorts out of the market.