Natural Gas Weekly Forecast: Market Searches for Winter Base

Natural Gas Weekly Technical Analysis

The natural gas market initially tried to break above the $3 level this week but then gave back gains pretty quickly.

Ultimately, the market continues to see a lot of volatility and choppiness. That does make quite a bit of sense, considering that the $3 level above is a large, round, psychologically significant figure and an area that would almost certainly have a lot of options action at it.

To the downside, the $2.50 area is the floor, but keep in mind we’ve got a situation where the seasonality is starting to think about changing. We’re in the October contract; a couple of weeks from now, we’ll be in the November contract, and then we start to talk about colder weather in the United States.

Supply and Demand Balance

Furthermore, natural gas disruptions coming out of the Middle East could force the Europeans to buy more U.S. natural gas, so we could see a bit of a knock-on effect here. You have not seen it yet. We’re 5% above the 5-year moving average of natural gas storage, so we’re still oversupplied in America.

But at this point in the year, that’s not a huge surprise. After all, most of the demand comes from air conditioning, and while we’ll get the occasional spot of summer that demands more, the reality is this summer hasn’t been particularly horrible. There have been some hot spots, but not enough to pull back that massive amount of supply.

So, with this, I think we’re in the process of trying to build the base for the move higher this winter. We’re just not out of that quite yet.

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