Natural Gas Price Fundamental Weekly Forecast – Strengthens Over $2.885, Bearish Under $2.848

Natural gas futures finished the week lower with prices driven down by a combination of increased production, a bearish government storage report and weather forecasts calling for the return of normal temperatures.

August Natural Gas settled at $2.858, down $0.066 or -2.26%.

On Friday, the U.S. Energy Information Administration reported that U.S. supplies of natural gas rose by 78 billion cubic feet for the week-ended June 29. This was slightly above the estimate of 75 Bcf.

Total stocks now stand at 2.152 trillion cubic feet, down 717 Bcf from a year ago, and 493 Bcf below the five-year average, the EIA said.

Forecast

According to Bespoke Weather Services, “The market remains in a battle between concerns of lower than normal storage and hot weather through the next couple of weeks and complacency that recent record high production levels will easily bail the market out of any shortages it may see through the winter.”

With production running more than 7 Bcf/d higher year/year, bearish traders are showing more of a reaction to the production figure than the bulls to the hefty deficit and hot summer temperatures.

This week, prices could rise if the heat dome currently dominating most of the U.S. continues beyond mid-month. However, the initial phase of any rally is likely to be fueled by short-covering. This means it won’t last and may not even be enough to recapture the psychological $3.00 level. In other words, something has to happen to bring in real buyers, willing to go long. A short-covering rally will only take out weak shorts and add nothing to the chart structure.

The market could turn bullish if production declines and temperatures remain hot beyond mid-month.

Finally, prices could drop sharply under $2.821 if production holds steady or increases, while high temperatures begin to subside or the heat dome begins to break up.

The weekly chart indicates the key area to watch is $2.885 to $2.848. We could build a case for a short-covering rally into $2.933 to $2.959 over the near-term. However, a sustained move under $2.848 could trigger a steep break with the next major target coming in at $2.727.