Natural gas futures are trading higher on Wednesday, clawing through several retracement levels as bulls try to trigger a technical breakout to the upside.
The strong rally actually started on Tuesday after increasing production and a lack of significant cooling demand drove prices to their lowest level since April 25.
The late session technical bounce wasn’t strong enough to produce a potentially bullish closing price reversal bottom, but it was significant enough to confirm a value area for speculators between $2.550 and $2.534.
At 12:28 GMT, July natural gas futures are at $2.624, up $0.040 or +1.55%.
While the strong rally may be an indication of position-squaring and short-covering, speculators are still facing a wall of resistance at $2.632 to $2.641.
The buying pressure will increase over $2.641 with $2.659 the next target. If this move is able to generate enough upside momentum then the rally may even extend into $2.679.
It will be difficult to extend the rally beyond this level, however, unless the weather turn extremely hot.
The price action since April clearly shows that buyers have identified $2.550 to $2.534 as a value area. Furthermore, major long-term bottom is $2.510.
Short-Term Weather Outlook
According to NatGasWeather for May 29 to June4, “Weather systems with showers and thunderstorms continue across the West and Plains with highs of 60s and 70s,
although gradually warming into the 70s to 90s by the weekend. Texas to the Mid-Atlantic Coast will be very warm to hot with highs of 80s & 90s as strong high pressure dominates,
hottest across the Southeast with 95-100F. Mostly warm conditions continue from Chicago to NYC with highs of 70s and 80s, although with showers across the Upper Midwest.
Hot high pressure over the Southeast will weaken late week in the week through the weekend as weather systems advance across the northern US with showers.
Overall, demand will be moderate through Thursday due to hot conditions over the southern US, then low as coverage and intensity of 90s eases.”