Natural Gas Price Fundamental Weekly Forecast – Short-Covering Rally Fueled by Light Injections

Sellers drove natural gas prices to their lowest level since December 27, 2017 on concerns over strong production and a return to average temperatures in several key demand areas. However, futures prices were able to recover enough to close slightly higher for the week after the U.S. Energy Information Administration reported a smaller-than-expected storage injection during the week-ending July 13, 2018.

Last week, September Natural Gas futures settled at $2.728, up $0.004 or +0.155.

Technical factors also played a role in last week’s price action with the market forming a closing price reversal bottom on both the daily and weekly charts. Any follow-through to the upside will confirm these chart patterns and could trigger sizable short-covering rallies over the near-term.

The catalyst behind last week’s reversal to the upside was a government storage report which showed an injection well below expectations.

According to the U.S. Energy Information Administration (EIA), domestic supplies of natural gas rose by 46 billion cubic feet for the week-ended July 13. Traders were forecasting a build of about 59 billion cubic feet, while the average over the last five years for the same week was a rise of 62 billion.

Total stocks now stand at 2.249 trillion cubic feet, down 710 billion cubic feet from a year ago, and 535 billion below the five-year average, the government said.

Forecast

Last week’s price action and government storage report may not be enough to change the trend to up, but there may be enough there to support a short-term, counter-trend, short-covering rally.

The short-term range of the September Natural Gas futures contract is $3.018 to $2.671. Its 50% to 61.8% retracement zone at $2.845 to $2.885 is the primary upside target. Any rally into this zone, however, is likely to be met by fresh selling pressure.

The upside target is not likely to be reached over the near-term unless temperatures turn extremely hot for a long period of time and production falls dramatically from near record levels.

Last week, the market poked through a previous main bottom at $2.674, finding support at $2.671. If the selling resumes this week and $2.671 fails then look for the selling to extend into the December 2017 bottom at $2.592.

The market may have run out of sellers last week and could be poised for further consolidation or even a short-covering rally, but the chart pattern should not be construed as bullish.