Natural Gas Price Fundamental Weekly Forecast – Vulnerable to Steep Break Starting Under $2.885

Natural gas futures closed lower last week, pressured by forecasts for cooler temperatures and a two-sided government weekly storage report. The price action indicates hedgers are defending the $3.040 to $3.050. It also suggests that prices could collapse if a key technical level at $2.885 is taken out with conviction.

August Natural Gas settled at $2.924, down $0.021 or -0.71%.

On Thursday, the U.S. Energy Information Administration said that domestic supplies of natural gas rose by 66 billion cubic feet for the week-ended June 22. Traders were looking for an increase of 71 billion cubic feet.

The data, however, included an upward revision for the week-ending June 15. The previously reported figure was 91 Bcf. The revised figure was 95 Bcf.

Total stocks now stand at 2.074 trillion cubic feet, down 735 billion cubic feet from a year ago, and 501 billion below the five-year average, the government said.

Further details of the EIA report revealed a net 66 Bcf injection into Lower 48 gas stocks for the period, on the weak side of market expectations ahead of the report. Last year, the EIA recorded a 48 Bcf injection, and the five-year average is a build of 72 Bcf.

The EIA reported a below-consensus on Thursday, which was bullish, but the upward revision from the previous week stopped the rally and turned the market lower for the session.

Forecast

Despite a forecast for hot temperatures the first week of July, gains were limited and prices retreated due to reports of strong production. The price action in the spot market suggests traders in the hot regions saw the heat coming and are well-supplied.

Potentially pressuring prices were forecasts on Friday which showed heat in the short- and medium-term easing off by mid-July.

The catalysts controlling the price action at this time are production and hot temperatures. A drop in production and forecasts for lingering-heat beyond mid-July could be supportive for prices, but the speculative buying will have to be well above average to take out the hedgers and short-sellers defending the $3.04 to $3.05 area.

Above average production and average temperatures will likely limit gains and could put pressure on the market. The weekly chart indicates the first sign of weakness will be a break through $2.885. Prices could collapse, however, if sellers come in strong at $2.848. The next major support under this price level is $2.727.

July 4 is a U.S. holiday so the weekly EIA report will be pushed to Friday. Early estimates show traders are looking for an average build of about 73 Bcf for the week-ending June 29, with a median build of 75 Bcf and a range of 57 Bcf to 82 Bcf. Last year, the EIA recorded a 60 Bcf build for the period, and a five-year average build of 70 Bcf.