Natural gas futures are trading slightly higher early Wednesday in what is believed to be a small technical adjustment to a market in the midst of steep decline. The early price action suggests we may see some short-covering and profit-taking throughout the day as traders begin adjusting positions ahead of Thursday’s weekly storage report. However, we’re not likely to see a change in trend to up and hedgers are likely to take advantage of any rally by increasing their bets on lower prices.
August Natural Gas futures are trading $2.805, up 1.7 cents.
Prices continue to be pressured by rising production which is offsetting the lingering demand from the summer heat and the on-going supply deficit. Reports show that natural gas production in the Lower 48 states jumped 1.5 Bcf/d during the final three weeks in
Essentially, the natural gas market shifted from a weather-driven market to a production-driven market. This turned the tide on the bulls, forcing them to give up hope for $4/MMBtu prices in mid-June even while forecasts still called for an extended heat dome over most of the United States into mid-July.
At current production levels and with temperatures expected to drop back to more normal levels, traders are now increasing short-side bets that the current supply deficit will be shored up before the start of winter.
At this time, our primary downside target remains the May bottom at $2.727. We may see periodic short-covering rallies due to technically oversold conditions. However, we expect $2.848 to act as solid resistance.