Natural gas futures are trading lower shortly after the New York opening on Tuesday as investors booked profits following weather reports calling for reduced short-term cooling demand. Meanwhile, traders are gearing up for what could be a highly volatile trading session due to this week’s front month futures contract expiration.
At 13:40 GMT, September natural gas futures are trading $4.009, down $0.073 or -1.72%.
EBW Analytics Group Predicts Heightened Volatility
Coming off of Monday’s highly volatile trade, the analysts at EBW Analytics Group see more of the same price action following the “major” losses in projected cooling degree days (CDD) in yesterday’s midday weather model runs.
“With options expiring today and contract expiration tomorrow, near-term volatility is likely to remain high,” the EBW analysts said in a note to clients early Tuesday. “With models continuing to shed CDD overnight, though, the price trajectory later this week could reveal a great deal regarding likely price trends in August.”
Maxar Sees Cooler Temperatures
Maxar’s Weather Desk noted cooler changes in both the six- to 10-day and 11 – 15 day periods in its latest forecast Tuesday. For the six- to 10-day, covering Sunday through August 5, the changes were focused on the eastern two thirds of the Lower 48.
“High pressure will be sent southward from Canada and into the Midwest and East, supplying and reinforcing below normal temperatures,” Maxar said. “The feature pushes farther south than in earlier outlooks, likewise sending a frontal boundary southward.”
Cooler adjustments in the latest projections for the 11- to 15-day window, from August 6-10, were focused in the Midcontinent and South, according to the forecaster.
As a result of the large-scale pattern for the period “durable heat should lack in the eastern half, where the forecast is near normal with temperatures,” Maxar said. “Above normal readings favor the West, which has been the case for most of the summer in response to the ongoing drought.”
The fact that September natural gas futures didn’t gap higher on Monday after a long weekend was the first sign of weakness. One would expect that during a weather-driven rally, prices would gap after a hot weekend. But traders weren’t looking at today’s heat, but rather 10 to 15 days down the road and that forecast wasn’t bullish enough to trigger a gap or an upside breakout on the technical charts.
According to EBW analysts, prices in the day-ahead market could slide next week, given that the hottest weather of the summer is expected to come to an end later this week. This would put downward pressure on futures prices, they said.