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Natural Gas Price Fundamental Weekly Forecast – Short-Covering Rally Target $2.845 to $2.885

By:
James Hyerczyk
Updated: Jul 30, 2018, 02:57 UTC

Looking ahead to Thursday’s EIA report, the early estimate shows a 40 Bcf to 45 Bcf build for the week-ending July 27. Last year, the EIA recorded an 18 Bcf injection, and the five-year average is a build of 43 Bcf. The weekly chart indicates that as long as $2.671 holds as support, there is a chance of a near-term short-covering rally with $2.845 to $2.885 the best upside target. Sellers are likely to show up on a test of this area.

Natural Gas

Natural gas futures closed sharply higher last week, fueled by weaker-than-expected U.S. government data and renewed concerns over the storage deficit. There are no major weather concerns at this time, however, August can be a tricky month with the possibility of renewed heat and an increased threat of hurricane activity near refineries in the Gulf of Mexico.

Last week, September Natural Gas futures settled at $2.782, up 0.054 or +1.98%.

U.S. Energy Information Administration Report

On Thursday, the U.S. Energy Information Administration reported that U.S. natural gas in storage increased by 24 Billion Cubic Feet (Bcf) to 2.273 Tcf. The build was much less than analyst estimates calling for a build of about 39 Bcf.

The injection was higher than the 19 Bcf build reported during the corresponding week in 2017 but well below the five-year average addition of 46 Bcf, according to EIA data.

As a result, stocks were 705 Bcf, or 24%, less than the year-ago level of 2.978 Tcf and 557 Bcf, or 20%, less than the five-year average of 2.784 Tcf.

 

Weather Forecasts

According to NatGasWeather.com for July 30 to August 2, “Strong upper high pressure continues to dominate the western and southern U.S. with highs of 90s to 110F, hottest from California to Texas for strong regional demand. A warm and wet weather system remains along the East Coast, while a cooler system upstream will continue through the Midwest and east-central U.S. with showers and comfortable highs of 70s to lower 80s, including into the South this weekend. Overall, demand will be high to moderate.”

Data from NatGasWeather.com also came in hotter for the August 4-8 period, “seeing hot high pressure build more aggressively across the east-central U.S., then little changed August 9-13. Overall, we see it as a touch hotter due to more impressive heat over the eastern half of the country.”

Forecast

September natural gas futures could find support this week due to potential higher temperatures in early August and a tight storage picture. However, gains are likely to be limited by production.

Bespoke Weather Services, however, offer a different assessment. Its analysts say, “Yet fundamentals appear to remain quite bullish overall; burns continue to run quite tight on a weather-adjusted basis and though production is still very elevated it sits off recent highs,” the firm said. “Throw in how tight” Energy information Administration (EIA) storage data has been the past few weeks, “and it becomes harder to believe production is exactly as elevated as estimated.”

Looking ahead to Thursday’s EIA report, the early estimate shows a 40 Bcf to 45 Bcf build for the week-ending July 27. Last year, the EIA recorded an 18 Bcf injection, and the five-year average is a build of 43 Bcf.

The weekly chart indicates that as long as $2.671 holds as support, there is a chance of a near-term short-covering rally with $2.845 to $2.885 the best upside target. Sellers are likely to show up on a test of this area.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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