Natural Gas Price Fundamental Weekly Forecast – Price Action Suggests Traders Pricing in Return of Hot Temperatures

Natural gas futures finished higher last week with some speculative buyers coming in to defend the previous week’s low at $2.305, in anticipation of the return of hotter temperatures late in the month. The government report was also supportive, but investors were primarily focused on the forecasts. The chart indicates there is room to the upside for a short-term counter-trend rally, but it doesn’t suggest a change in trend to up is imminent.

Last week, August Natural Gas futures settled at $2.381, up $0.050 or +2.15%.

U.S. Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported Thursday that domestic supplies of natural gas rose by 102 billion cubic feet (Bcf) for the week-ending June 7. Traders were looking for a reading of 110 Bcf.

Total stocks now stand at 2.088 trillion cubic feet (Tcf), up 189 Bcf from a year ago, but 230 Bcf below the five-year average, the government report showed.

Short-Term Weather Outlook

According to NatGasWeather for June 14 to June 20, “A large weather system and associated cool shot will fizzle across the northern and eastern US the next few days with highs of 60s to 70s. This system also brought cooling to the South and Southeast, although warming back into the upper 80s to 90s this weekend. Strong high pressure continues heat across the West with highs of 80s to 100s for regionally strong demand, although cooling next week. The South and East will be quite warm Sunday into early next week with highs into the 90s, then cooling mid-next week back into the 70s and 80s. Overall, demand will be moderate to low.

Weekly Forecast

Early in the week, trader reaction to a minor top at $2.406 will tell us if the short-covering is getting stronger. If momentum begins to build on this move then the rally could eventually extend into the short-term pivot price at $2.518. This rally will look impressive on the short-term charts, but it will only represent short-covering.

We’re going to be keeping an eye on the 11- to 15-day forecast. If the forecasts call for increased heat then look for a breakout over $2.406 with $2.518 the minimum upside target. If the forecasts call for temperatures to return to normal then look for a range bound trade. This won’t be bearish, per se, but it could allow speculators or professionals to build a support base before attempting to take the market higher.