Natural Gas Price Fundamental Weekly Forecast – In Position to Challenge Psychological $2.00 Level

Natural gas futures showed some promise for bullish counter-trend traders early last week, but then this sliver of hope was destroyed by a government report showing ample supply and weather forecasts pointing toward average-to-cooler temperatures over the near-term. The price action and the downside momentum into the close on Friday suggest there is more selling to come this week.

Last week, September natural gas futures settled at $2.121, down $0.029 or -1.35%.

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported that domestic natural gas supplies rose by 65 billion cubic feet for the week-ended July 26. A consensus forecast by analysts had called an increase of 52 billion cubic feet.

Total stocks now stand at 2.634 trillion cubic feet, up 334 billion cubic feet from a year ago, but 123 billion cubic feet below the five-year average, the government said.

Short-Term Forecast

According to NatGasWeather for August 2 to August 8, “Hot high pressure will rule the West and Plains with highs of upper 80s to 100s, hottest over the Southwest & Texas. Temperatures will be quite comfortable across the Midwest and Northeast with highs of 70s and 80s as a series of weather systems and associated cool fronts sweep through for light demand. Overall, national demand will be moderate.”

Mid-Term Forecast

“There will be bouts of heat, especially across the southern US, but it’s now the northern US where the pattern doesn’t look nearly hot enough the next two weeks with highs only reaching the 70s and 80s for relatively light demand.”

The weather patterns weren’t hot enough to justify the strength last week, and this is likely to continue this week, “especially when considering the next several storage reports are favored to print larger than 5-year averages to further improve deficits to only -100 Bcf after being a hefty -720 Bcf this past winter.”

“Unless there are notably hotter trends over the weekend, we continue to view weather patterns as maintaining a bearish bias.”

The 8-15 day outlook sees the northern half of the U.S. not hot enough, but the southern US is.

Weekly Forecast

With widespread discounts across the US and forecasts calling for moderate temperatures in the major demand areas in the Midwest and Northeast, it’s going to be hard to build a bullish case for natural gas this week. Lower cash markets are also likely to be a drag on prices.

Any upside action this week will have to be attributed to position adjustments, profit-taking and short-covering. This will only set up the next shorting opportunity. Adjustments in the weather forecasts will likely be the catalysts behind any upside action.

Last week’s plunge to $2.077 has put the psychological $2.000 level in the window. We could see the usual technical bounce on a test of this level, but we can’t really get excited about the upside unless there is a sustained move over $2.333.