With the market currently sitting near a key support level, the next 10-14 day forecast could determine whether prices plunge to $2.727 or retrace back to at least $2.933 over the near-term.
Natural gas futures are trading lower early Monday. Currently, the market is trading inside the July 5 and July 6 ranges while straddling a key technical level on the daily chart. This indicates investor indecision and impending volatility.
August Natural Gas is trading $2.831, down $0.027.
The uncertainty in the market at this time is understandable because traders are waiting to see the next 10 to 14 day forecast that will offer more insight into temperatures beyond July 15. Going into the week-end, the latest forecast was calling for the return of more mild temperatures after mid-month.
Traders were also watching the daily chart pattern. According to the daily chart, the main range is the May 7 bottom at $2.727 and the June 18 top at $3.043. Inside this range is a 50% to 61.8% retracement zone at $2.885 to $2.848.
Trader reaction to $2.885 to $2.848 will determine the next major move in the market. Currently, natural gas is trading on the weak side of the 50% level at $2.885 and straddling the 61.8% level at $2.848. A sustained move under $2.848 will indicate the selling pressure is getting stronger. This could lead to a break into the May 17 main bottom at $2.821.
If $2.821 fails then look out to the downside because the next target is $2.727.
If buyers can overcome $2.885 then we could see a short-covering retracement rally into $2.933 to $2.959.
On Friday, the U.S. Energy Information Administration reported that U.S. supplies of natural gas rose by 78 billion cubic feet for the week-ended June 29. This was slightly above the estimate of 75 Bcf.
Total stocks now stand at 2.152 trillion cubic feet, down 717 Bcf from a year ago, and 493 Bcf below the five-year average, the EIA said. Last year, total stocks stood at 2.869 Tcf. The five-year average is at 2.645 Tcf.
The latest production figures show it running more than 7 Bcf/d higher year/year.
Essentially, the bulls and the bears are battling between concerns of lower than normal storage and the lingering hot weather along with complacency that current production levels will eventually overtake any shortages before the winter.