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Natural Gas Price Fundamental Daily Forecast – Seasonal Buying Continues to Lift Prices

Natural gas futures are trading higher on Wednesday up 4.7 cents at $2.405..

Short-covering tied to seasonal buying and the expiration of the September futures contract last week continue to drive the price action.

Spot market strength and the weather are also influencing the price action.

Demand Concerns Lifted as Hurricane Dorian Moves Away from Florida

Hurricane Dorian is also having an impact on prices, but not what you probably think. Some analysts have been pushing the hurricane story as the reason for the recent strength,

but they haven’t been watching the traditional fundamentals and the usual impact of a Florida hurricane on prices.

Florida hurricanes that affect the East Coast usually drive natural gas prices lower because they drive down demand.

Hurricanes in the Gulf of Mexico near Louisiana and Texas are usually bullish for natural gas prices because they usually lead to production disruptions.

For several days, natural gas traders were worried about demand, but once the forecasts called for the Hurricane Dorian to move north, along the East Coast and away from Florida,

the demand concerns were lifted, allowing prices to rise. Furthermore, at no time were the natural gas platforms in the Gulf of Mexico threatened.

Massive Short-Covering

We said last week that shorts held record positions when the September futures contract expired last week.

We also said that they would have to decide whether to rollover into the October contract in anticipation of lower prices,

or cover their positions in anticipation of the start of the fall shoulder season and in preparation for winter demand.

Based on the price action, it looks as if they have decided to cover their positions. This is another factor driving prices higher.

Other Weather Related News

According to Bespoke Weather Services, this week’s rally comes “thanks mostly to strong cash prices, but with some support from a weather pattern that finally move hotter,

with heat expanding out of the West and into parts of the central and eastern United States.”

With Hurricane Dorian approaching Georgia, Kinder Morgan Inc. has temporarily shuttered its Elba Island liquefied natural gas (LNG) terminal on the Georgia coast.

However, this is having no impact on prices because of the possibility of lower demand when the electrical power goes out.

– Seasonal Buying Encouraging Short-Covering Natural gas futures are edging higher on Tuesday. The price action reflects short-covering related to last week’s rollover from the September futures contract to the October futures contract. The futures contract went off the board with a record number of shorts. Traders had to decide whether to rollover their shorts into the October futures contract and attempt to continue to press the market lower, or reduce their positions ahead of seasonal buying. At 06:25 GMT, October natural gas futures are trading $2.340, up $0.05. Hurricane Dorian is having no impact on the rally. It is nowhere near the natural gas production facilities in the Gulf of Mexico near Louisiana and Texas. Furthermore, it could actually lead to lower cooling demand in Florida, Georgia and the Carolinas if it takes out electrical power. The two other tropical disturbances near Mexico and off the coast of West Africa are also not influencing the price action in the futures market although they are being watched. Short-Term Weather Outlook According to NatGasWeather for August 30 to September 6, “Comfortable conditions will continue across the Midwest, Northeast, and Mid-Atlantic with highs of upper 60s to lower 80s for light demand. The West into Texas will be hot with highs of 90s and 100s as high pressure rules for strong regional demand. Hurricane Dorian will bring rains to Florida and portions of the Southeast Sunday through Tuesday, while high pressure will expand across much of the rest of the country for a minor bump in national demand. However, the northern and eastern US will cool back to the comfortable 70s late in the week. Overall, national demand will be moderate, increasing to high Monday to Wednesday.” U.S. Energy Information Administration Weekly Storage Report The August 29 EIA report was bearish on paper, but that didn’t prevent the huge short-covering rally. The EIA reported a number that was on the high end of the estimates. The EIA reported a 60 Bcf injection but a few Bcf above the five-year average of 57 Bcf, according to the government. Total working gas in storage as of August 23 stood at 2,857 Bcf, 363 Bcf higher than last year and 100 Bcf below the five-year average.

atural Gas Price Fundamental Daily Forecast – Seasonality Shift Causing Heightened Volatility

Natural gas futures are edging lower early Friday after posting impressive gains in heat related activity. However, gains were likely capped by a dip in spot gas prices.

“Recent strength in the cash market helped prop up NYMEX futures for much of the week,

but speculative traders that had notched a record number of short positions earlier in the month remained

in the driver’s seat even as cash prices retreated on Thursday,” according to Natural Gas Intelligence.

At 09:05 GMT, October natural gas futures are trading $2.280, down $0.016 or -0.70%.

Technical chart factors and the rollover to the October futures contract continue to be the main focus for traders although they are keeping an eye on Hurricane Dorian.

Despite the bearish chart pattern and fundamentals, prices soared on Thursday after weak short aggressively covered positions when $2.226 failed to hold as resistance.

This also occurred to some extent when $2.273 and $2.278 were breached.

U.S. Energy Information Administration Weekly Storage Report

Thursday’s EIA report was bearish on paper, but that didn’t prevent the huge short-covering rally.

The EIA reported a number that was on the high end of the estimates. The EIA reported a 60 Bcf injection but a few Bcf above the five-year average of 57 Bcf, according to the government.

Total working gas in storage as of August 23 stood at 2,857 Bcf, 363 Bcf higher than last year and 100 Bcf below the five-year average.

Short-Term Weather Outlook

According to NatGasWeather for August 29 to September 5, “Comfortable conditions will continue across the Midwest, Northeast and

Mid-Atlantic regions due to weather system with showers and cooling for light demand.

The West into Texas will be hot with highs of 90s and 100s as high pressure rules for strong regional demand.”

“Tropical storm Dorian will bring rains to Florida and portions of the Southeast Sunday through Tuesday,

while high pressure will expand across much of the country Tuesday through Wednesday for a minor bump in national demand, although cooling off again late in the week.”

“Overall, national demand will be moderate to low across the central and northern US but high over the West into Texas.”

Daily Forecast

We’re at a critical point in the year where volatility can increase due to seasonality shifts.

With the summer cooling season winding down, traders start to prepare for the winter heating season starting around September 1.

Most of the price action is likely to be determined by what the massive amount of short-sellers decide to do with their positions.

They can continue to press the market lower, or start taking profits and lifting shorts. This can produce periodic rallies.

EIA reports a weekly rise of 62 billion cubic feet in U.S. natural-gas supplies

The U.S. Energy Information Administration reported Thursday that domestic supplies of natural gas rose by 62 billion cubic feet for the week ended July 12.

The data were expected to show a build of 65 billion cubic feet, on average, according to analysts polled by S&P Global Platts.

Total stocks now stand at 2.533 trillion cubic feet, up 291 billion cubic feet from a year ago,

but 143 billion below the five-year average, the government said.

August natural gas NGQ19, +0.09% traded at $2.314 per million British thermal units, up 1 cent from Wednesday’s settlement.

Natural gas prices tumbled on Thursday despite a smaller than expected build reported by the Department of Energy on Thursday.

Stronger future production forecast by the Energy Information Administration in their Short-term Energy outlook put downward pressure on prices.

The weather is expected to be normal over the next 2-weeks which will likely have a limited effect on the price of natural gas.

Currently, the prompt month NG contract is trading slightly higher at $2.347 up 2 cents.

Technical Analysis

Natural gas prices dropped sharply on Thursday, declining 2.6% and poised to test the June lows at 2.305.

A close below this level would put prices on a path to test the 2016 lows at 1.91.

Inventories Rose Less than Expected

Natural gas inventories rose less than expected according to a report from the EIA.  

This represents a net increase of 102 Bcf from the previous week. Expectations were for inventories to rise by 114 Bcf.  

Stocks were 189 Bcf higher than last year at this time and 230 Bcf below the five-year average of 2,318 Bcf. At 2,088 Bcf, total working gas is within the five-year historical range.

EIA forecasts that U.S. dry natural gas production will average 90.6 billion cubic feet per day (Bcf per day) in 2019, up 7.2 Bcf per day from 2018.

EIA expects natural gas production will continue to grow in 2020, albeit at a slower rate, averaging 91.8 Bcf per day next year.

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.”

Natural gas futures are trading lower on Wednesday . The May natural gas futures are trading $2.52, down $0.044.

Bearish traders could also be reluctant to short into weakness this close to major support at $2.50.

Changes in Forecast Coming?

“If current weather forecasts hold, the past few days could prove to be an important turning point for natural gas futures,” according to EBW Analytics Group.

“Prior to this past weekend, temperatures in Week 2 had been expected to be cool enough to potentially push prices back up, at least for a short-time period.

The weekend forecast shift, however, most likely negates this scenario,” the firm said.

“If current forecasts verify, however, the resulting drop-off in weather-driven demand is likely to pull natural gas prices down further,

even if Sabine Pass returns to full capacity,” EBW CEO Andy Weissman said.

Storage Deficit Likely to Shrink

Even if cooler temperatures return, buyers are not likely to overcome strong headwinds which will likely prevent a significant rally at any time during the next few weeks.

This is because “monster injections” are expected the next two weeks, with a series of 100-plus Bcf injections to follow.

Natural gas futures are trading lower on Monday as downside momentum threatens to challenge last week’s low amid mild weather forecasts and warnings of a possible triple digit injection in this week’s government storage report.

At 10:10 GMT, May Natural Gas futures are trading $2.609, down $0.052.

Daily Forecast

Downside momentum on the daily chart has put the June natural gas futures contract in a position to take out the last main bottom at $2.675. This will reaffirm the downtrend and put the market in a position to challenge the February 7 main bottom at $2.647, followed by the low for the calendar year at $2.623.

From a longer-term perspective, taking out $2.686 will also put the market on the weak side of a weekly retracement zone. This will put the market in a bearish position.

Expectations of increasing injections could be driving the price action today. “Continued loose balances point to another hefty injection versus the five-year average next week as well,” according to Bespoke.

Last week, Tudor, Pickering, Holt & Co. said there was a potential for the EIA to report a 100 Bcf-plus build, which would be five times the five-year average. Most analysts, however, are estimating a build closer to around 90 Bcf.

Natural gas futures are trading lower on Tuesday shortly before the regular session opening.

The market turned lower after hitting its highest level since December 24 earlier in the session.

We’re in a weather market so volatile two-sided trading can be expected.

Furthermore, the current four day rally from 2.809 to $3.373 may have been too much, two soon, putting the market in overbought territory.

Although the short-term uptrend may not be affected, the market may be ripe for a pull-back into support while investors continue to digest the weather forecasts.

At 12:30, GMT, March natural gas futures are trading $3.268 to $0.021 or -0.64%.

Forecast

The market is likely to remain underpinned by the bullish six- to 10-day and 11-15 day weather forecasts, however,

there is a warm period between the cold blasts that may encourage some light profit-taking. We could be looking at that today.

The current intraday chart pattern indicates that investors will have to decide between buying strength and playing for a breakout

over today’s intraday high at $3.373, or wait for a pullback into the support zone at $3.091 to $3.024