Natural Gas Price Fundamental Weekly Forecast – Needs Hot Weather to Turn Sellers into Buyers

A 4-percent jump in natural gas prices on June 15 after a government report showed a smaller-than-expected inventory increase wasn’t enough to turn the market higher for the week. The rally caught the mostly short market by surprise, causing short-sellers to scramble to get out of their positions, but it wasn’t bullish enough news to flip the major players to the long side of the market.

August Natural Gas settled the week at $3.060, down $0.011 or -0.36%.

According to the U.S. Energy Information Administration (EIA), U.S. natural gas stocks increased by 78 billion cubic feet for the week-ending June 9. Analysts were expecting a storage injection of 89 billion cubic feet.

Additionally, the five-year average for the week is an injection of 87 billion cubic feet, and last year’s storage injection for the week totaled 68 billion cubic feet. Last week’s report showed natural gas inventories rose by 106 billion cubic feet in the week-ending June 2.

The EIA also reported that U.S. working stocks of natural gas totaled about 2.709 trillion cubic feet, around 228 billion cubic feet above the five-year average of 2.481 trillion cubic feet and 322 billion cubic feet below last year’s total for the same period. Working gas in storage totaled 3.031 trillion cubic feet for the same period a year ago.

Forecast

Despite the surprise in the EIA report, the tone in the market is still bearish because of technical factors and the fundamentals which are being driven by the weather. Unless there is a major shift in demand in the high population areas, prices are likely to remain under pressure over the near-term.

According to natgasweather.com, during the June 16 – 22 period, “Warm to hot conditions will dominate the southern 2/3rds of the U.S. as strong high pressure brings highs of upper 80s to lower 90s, upper 90s to 100s over the SW into Texas”.

“Modest cooling will now impact portions of the northern 1/3^rd with highs mainly in the upper 60s and 70s. Over the West, temperatures are becoming increasingly hot with 90s and 100s gaining ground.”

“Early next week, a stronger cool shot will sweep out of the north-central U.S. and across the Great Lakes & Mid-Atlantic.”

“Overall, natural gas demand will be strong through the weekend then easing Monday through Wednesday. Overall, natural gas demand will be moderate to high.”

Oversold technical conditions could trigger periodic short-covering rallies, but the overall trend is likely to be down over the near-term until the weather turns hot in key demand areas of the Midwest and East Coast. Any short-covering rallies are likely to be met by renewed shorting pressure.

Taking out $3.127 could trigger a surge to the upside, but this will be fueled by buy stops. The main target on the upside is $3.233. If sellers continue to come in to defend $3.127 then pressure could increase with $2.936 the next target, followed by $2.910.