Natural Gas Price Fundamental Weekly Forecast – Output Drop, Scorching Forecasts Set Bullish Tone

Natural gas futures finished higher last week amid a drop in daily gas output and forecasts for hotter weather and more demand over the next two weeks than previously expected. Bullish speculators also shrugged off a potentially bearish weekly government storage report.

Last week, September natural gas futures settled at $6.926, up $0.959 or +16.07%. The United States Natural Gas Fund ETF (UNG) finished at $24.25, up $1.55 or +6.83%.

Weekly Weather Forecasts

Accuweather said aside from short-lived reprieves, the oppressive heat that has dogged Texas and most of the South this summer will persist through late July and into August.

A “dome of high pressure that has been a mostly permanent fixture across the South Central states” is trapping in hot air and bolstering temperatures into the triple-digits, AccuWeather meteorologist David Houk said.

Rystad Energy analyst Ryan Kronk said, “Too add insult to injury, the summer months have barely just started and higher temperatures are all but certain in late July and early August.”

NatGasWeather said, the “impressively hot” temperatures in the outlook for the back half of July and week/week production weakness support a bullish case. The firm said forecasts point to “widespread heat” and “strong to very strong” demand for natural gas nationally from this weekend through July 27.

US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) on Thursday said utilities added 58 billion cubic feet (Bcf) of gas to storage during the week ended July 8.

That was in line with the 58 Bcf build analysts forecast in a Reuters poll and compares with an increase of 49 Bcf in the same week last year and a five-year average increase of 55 Bcf.

Total working gas stocks in storage stand at 2.369 trillion cubic feet, down 252 billion cubic feet from a year ago and 319 billion cubic feet below the five-year average, the EIA said.

Weekly Forecast

Technically speaking, trader reaction to the long-term 50%-61.8% retracement zone at $6.557 to $5.839 is likely to determine the direction of the September natural gas futures contract this week.

Look of an upside bias to develop on a sustained move over $6.557 with $7.461 to $7.965 the next potential upside target. The downside bias could resume on a sustained move under $5.839 with $5.324 a potential target.

Holding inside $6.557 to $5.839 will indicate a neutral trade.

Fundamentally, a combination of low production and hot temperatures will provide the support and could be the catalysts that drive prices sharply higher.

Any weakness in the weather forecasts and increased production could be the catalysts that put a lid on prices or lead to enough selling pressure to break through support.

We are maintaining an upward bias as long as temperatures remain hot. We could see consolidation, however, this week ahead of strong to very strong national demand going into the end of the month.