Natural Gas Price Fundamental Weekly Forecast – Strengthens Over $2.149, Weakens Under $2.136

Natural gas futures finished higher last week, underpinned by forecasts calling for hotter temperatures into mid-August, but driven sharply higher by an improving outlook for LNG exports to Asia and Europe.

After spiking into its highest level since early May, the market found resistance last Thursday at $2.284 after the release of an uneventful government storage report. The news was enough to fuel a sharp intraday break.

Last week, September natural gas settled at $2.238, up $0.422 or +23.24%.

The trend is up, but last Thursday’s break stopped the upside momentum. In order to resume the momentum, the buying is going to have to be strong enough to overcome $2.284. This could trigger an acceleration to the upside with $2.499 the next major upside target.

On the downside, the major support is a technical level at $2.149. However, I believe the trigger point for another sharp break is $2.136. Taking out this level could drive the market into a major 50% level at $2.041. Since the main trend is up, buyers could come in on a test of this level. If it fails, then look for an extended break.

Storage Risk Concerns Move to the Forefront

Tudor, Pickering, Holt & Co. (TPH) analysts viewed the past week’s natural gas roller coaster ride as being “commonplace” for the next couple of months, with significant volatility expected as the United States manages storage risks, Natural Gas Intelligence (NGI) reported.

“As we see it, the market is caught between two very different outcomes,” analysts said. “Storage is OK and should allow the market to price a more normal summer/winter spread, which would price the prompt month closer to $2.50, or storage is a problem, and we need to price supply out of the system and/or stimulate power demand, pricing the prompt month in the $1.50-1.60 range.”

The TPH team currently forecasts the storage carryout at 4.06 Bcf, “which leaves a reasonable amount of wiggle room,” but said things are more problematic on a regional level, with South Carolina, Midwest and East regions all facing a potential storage crunch. Given the vastly different outcomes depending on whether we can clear storage or not, we suggest tightening the shoulder straps as we ride out the next couple months.”

Weekly Weather Outlook

According to NatGasWeather for August 10-16, “Very warm to hot conditions will rule much of the U.S. to open the week with highs of upper 80s to mid-90s, 100s across the Southwest deserts into California. Cooler exceptions will continue across the Midwest as weather systems track through with showers and comfortable highs of 70s to lower 80s. The Northeast will be hot Monday-Wednesday with upper 80s to lower 90s, then cooling into the 80s Thursday-Saturday to ease national demand slightly but still high.”

Weekly Forecast

We’re looking for a firm tone as long as September futures prices can hold above $2.136. If they fail at this level, then look for a possible clean break into $2.041.

A sustained move over $2.149 will indicate the presence of buyers. If the move is able to generate enough upside momentum then look for the rally to possibly extend over $2.284. The weekly chart is wide open to the upside over this level with $2.499 the next likely upside target.

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