Natural Gas Price Fundamental Weekly Forecast – Will Counter-Trend Buyers Continue to Defy Bearish Fundamentals?

Natural gas finished sharply higher last week, but contrary to some beliefs, the rally was fueled by massive short-covering or a “short-squeeze”, if you will, and not be the threat of Hurricane Dorian. Some say that while the hurricane was sitting off the coast of Florida, it was actually keeping a lid on prices because of its threat to demand, and when it became clear that the hurricane would move north, prices exploded to the upside as shorts scrambled to liquidate positions.

Last week, October natural gas settled at $2.496, up $0.211 or +9.23%.

Seasonality also played a role in producing the huge rally. Natural gas prices usually start to move higher around Labor Day, or shortly after the expiration of the September futures contract. This year, the contract expired with a record amount of shorts hold positions and they had to go somewhere once the futures contract went off the board.

Short-sellers could have rolled over into the October futures contract, hoping to press the market even lower. However, many decided to buy back positions, setting in motion the short-covering rally that continued to feed on itself all week. Prices rallied despite forecasters and analysts expressing skepticism as to whether the fundamentals supported the large gains.

With open interest falling as prices rose sharply, Powerhouse LLC President Elaine Levin described the move as a “classic short-covering rally.”

“I think the market got very, very oversold,” Levin told NGI. “It looked like some of the specs were about as short as they’d been in a long time.”

“Fundamentally, there’s a lot of gas around, but even bear markets have corrections,” Levin said. “This is the start of one. The question it does it turn into something more substantial.”

NatGasWeather analysts justified the rally to some extent by saying the fundamentals side may have offered a few reasons for the move. “Catalysts that could have aided gains,” including new liquefied natural gas (LNG) exports, coming online and hotter trends in the forecast, NatGasWeather said Friday.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 84 billion cubic feet for the week-ended August 30.

Prior to the report, experts were looking for a build in the upper 70s to low 80s Bcf. Bloomberg and Reuters were looking for a 78 Bcf injection, with expectations ranging from 67 Bcf to 90 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled at 76 Bcf. Natural Gas Intelligence’s model predicted an 80 Bcf injection.

The 84 Bcf build, recorded for the week-ended August 30, also comes in higher than both the 64 Bcf injection recorded last year and the five-year average build of 66 Bcf.

Total stocks now stand at 2.941 trillion cubic feet, up 383 billion cubic feet from a year ago, but 82 billion below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for September 7 to September 13, “Comfortable conditions continue across the Midwest & Northeast with highs of upper 60s to 80s for light demand. The southern US will be hot with highs of 90s and 100s as high pressure rules for strong demand. Hurricane Dorian will bring showers to the Mid-Atlantic and Northeast Coast the next few days before exiting. The West will cool this weekend into next week, while the rest of the country remains warmer versus normal. Overall, demand will be high across the southern US and moderate to low across the northern US.

Weekly Forecast

As far as this week is concerned, will fresh money enter the market to build on the upside momentum created by last week’s short-covering rally, or will the major short-sellers try to regain the upper hand by attempting to reestablish their previous positions? Additionally, one has to ask how much more the rally has in it without a change in the fundamentals? As of Friday, the supply/demand picture was still bearish.

Technically, the main trend is still down, however, momentum is trending higher. The main trend will change to up on a trade through $2.770. A move through $2.045 will signal a resumption of the downtrend.

The minor trend is up. It turned up when buyers took out $2.338. This move shifted momentum to the upside. Taking out $2.510 will reaffirm the change in the minor trend.

The first range is $2.770 to $2.045. Its retracement zone at $2.408 to $2.493 is currently being tested. This zone can turn into support or become resistance. It all depends on how traders reaction to $2.493.

The second range is $3.000 to $2.045. Its retracement zone at $2.523 to $2.635 is the next upside target. Since the main trend is still down on the weekly chart, sellers could come in on a test of this zone.