Natural Gas Price Fundamental Weekly Forecast – El Nino Effect Not Allowing Heat to “Lock in”
Natural gas futures posted a strong performance last week, but there were no signs of real buying. The relatively impressive rally was primarily fueled by short-covering due to a surprise in this week’s government storage report and position-squaring because of extremely oversold technical conditions. Speculative buyers were also betting on the return of heat to several key areas.
Last week, August natural gas settled at $2.308, $0.139 or +6.41%.
Bullish traders are hoping for the El Nino weather effect to weaken so that the expected heat during the first week of July will linger in key demand areas. Bearish traders were not impressed by the short-term forecasts. Furthermore, their conviction is also being driven by rising production and weak cash markets.
Mid-Term (11 to 15 Day) Weather Forecast
Bespoke Weather Services said on Friday, “We do still have some impressive heat to go through in the near-term across the Midwest and East, and down in the Southeast, with the upcoming week easily the hottest we have seen so far.”
Traders are looking for widespread temperatures in the 90s but “the actual hottest days we currently see lie around the Fourth of July holiday period, mitigating some of the impact we might otherwise see if the best heat was on a typical day.”
“The El Nino state has definitely weakened, and it is no coincidence that has occurred as the pattern shifts hotter, just as we saw in May,” Bespoke said. “We don’t believe it completely dies off, however, hence our idea that the near term above normal heat should not lock in.”
Short-Term (6 to 10 Day) Weather Forecast
According to NatGasWeather for June 28 to July 4, “Weather systems will bring showers and thunderstorms across the northern U.S. although quite warm with highs of upper 80s to lower 90s from Chicago to NYC, 70s and 80s further north. The southern and central US will be hot with highs of 90s, with 100s over the Southwest, although slightly cooler over Texas and the South early next week due to increasing showers. Overall, stronger demand due to greater coverage of 90s. Overall, demand will be moderate-high as highs of upper 80s and 90s gain in coverage.”
U.S. Energy Information Administration Weekly Storage Report
On Thursday, June 27 the EIA reported a 98 Bcf injection into storage inventories for the week-ending June 21. The build came within expectations, but fell well below the 104 Bcf consensus. Besides being the lightest injection of the summer so far, it also broke a streak of seven consecutive triple-digit injections. The build was also above last year’s 71 Bcf injection and the five-year 70 Bcf average.
Working gas in storage was 2,301 Bcf as of Friday, June 21, 2019, according to EIA estimates. This represents a net increase of 98 Bcf from the previous week. Stocks were 236 Bcf higher than last year at this time and 171 Bcf below the five-year average of 2.472 Bcf. At 2,301 Bcf, total working gas is within the five year historical range.
Weekly Forecast
There’s heat in the forecast, but like Bespoke Weather Services indicates as long as El Nino is in effect, the heat is going to have a hard time locking in.
We could see some short-covering this week because of oversold conditions and aggressive speculative buying, but bullish traders face layers of resistance at $2.440, $2.512, $2.569 and $2.671. Since the main trend is down, fresh short-sellers could come in at every level.
The key for the bulls will be taking out the main top at $2.745. A move through this level will change the main trend to up. However, this is unlikely unless there is a lingering heat dome over key demand areas. Right now, it’s just hot.
The forecast early in the week could set the tone. Traders tend to look out 14 to 21 days. So if there is excessive heat in the forecast for mid-July then I can build a case for an extended rally. If not, any rallies will be treated as new shorting opportunities by the major players.
Looking ahead to this week’s EIA report, traders are looking for a build of about 98 Bcf.
This article was originally posted on FX Empire
