Natural Gas Weekly Fundamental Analysis, August 10 – August 14, 2015 Forecast
September Natural Gas futures finished higher last week. The trading range was tight suggesting impending volatility. The chart pattern shows a prolonged period of congestion between 3.163 and 2.600. The key level dictating the direction of the market is 2.876. Trader reaction to this number will set the tone for the week. It is going to take similar numbers in next week’s U.S. Energy Information Administration inventories report to trigger a breakout over this level.
Last week, the U.S. Energy Information Administration (EIA) reported that U.S. natural gas stocks increased by 32 billion cubic feet for the week-ending July 31. Traders were looking for a storage injection (increase) of 40 billion cubic feet. The five-year average for the week is an increase of around 53 billion cubic feet. The current pace of injections suggests inventories may reach a record 4 trillion cubic feet by the end of October.
This week begins with stockpiles about 23% above their levels of a year ago and 2% above the five-year average. Unless this changes drastically, rallies are likely to be capped. If playing the long side, look for fast short-covering rallies. Prolonged rallies have been scarce and too risky to play. This is because each rally has been met by a stopper. This is likely to continue as long as stockpiles remain above historical levels.
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Weather remains the single biggest influence on prices at this time. The charts have identified the next potential resistance and breakout level, but unless there is an unexpected drop in stockpiles, prices aren’t expected to go much beyond 2.876 this week.
Last week, high temperatures across the U.S. last week bolstered power demand. Gas deliveries to electricity generators were up 7.8 percent from a year ago through Thursday. This could underpin the market late next week if it is reflected in the inventory numbers.
The market could feel pressure next week if traders decide to follow the current weather and ignore last week’s temperatures. With summer running out quickly, there is a general bearish pall being cast as the sweltering heat is expected to fade, reducing demand for the fuel to power air-conditioning units.
Temperatures are forecast to moderate for several days next week across much of the more heavily populated regions of the United States. By the end of the week, high temperatures and humidity are expected to return to Texas and the Southeastern states and may creep into the northern portion of the country.
Still, because of the lack of longevity of these high temperature patterns, any rally is expected to be short-lived.