Natural Gas Price Fundamental Daily Forecast – Still in ‘Sell the Rally’ Mode
Natural gas is edging higher for a second session early Monday after reaching a multi-year low last Friday. Sellers may be hitting the pause button at current price levels because with summer heat perhaps just around the corner, shorting at current price levels may not be offering that great of a reward/risk opportunity. In other words, they may be adopting a “sell the rally” attitude.
At 08:30 GMT, August Natural Gas is trading $2.191, up $0.022 or 1.01%.
Let’s try to put the current scenario in perspective. Prices have been sharply lower since Memorial Day, often treated as the unofficial start to summer in the U.S. As of the actual start of summer on Friday, natural gas was down 16% for the month of June. It’s currently trading at its lowest level since May 2016. A year ago, prices were trading just north of $3.00. Most interestingly, there are no contracts on the forwards curve above $3.00 until January 2024, according to Jude Clemente, a contributor to Forbes.
Part of the reason for the weakness is the weather. According to Mobius Risk Group, on a national level, the first 20 days of June have been 1.5% cooler than three-year norms and 20.5% cooler than the same 20 days last year.
Mobius Risk Group went on to say that six out of the eight prior years have ranked in the top 10 warmest Junes over the past 69 years, while June is on track to rank a lowly 34th warmest. “Weather is, and will remain, the most dominant force affecting near-term prices,” the Houston-based firm said.
Others cite low demand at 75-80 Bcf/d and steady production, currently at 86-87 Bcf/d, (but could rise to 90 Bcf/d before the summer cooling season ends).
Rising storage as reported by the U.S. Energy Information Administration (EIA) is also behind the plunge in prices. Last week, the EIA reported a 115 Bcf build for the week-ending June 14. Traders were looking for 104 Bcf.
Last year, the EIA report showed a 95 Bcf injection, while the five-year average injection stands at 84 Bcf. This was the 12th consecutive above-average build for gas inventories and the seventh triple-digit build of the year.
Finally, before the start of storage season, U.S. gas storage was 33% below the five-year average. Now it stands 11% above where it was at this time last year and only 8% below the five-year average.
Unless there is a drastic change in the weather and demand spikes higher, the chances of a bullish market trend developing are pretty slim so I think we’re going to be in a “sell the rally” mode for the next several weeks.
This article was originally posted on FX Empire
