Natural gas futures retreated for a second day this week on Tuesday as investors continued to adjust positions to the change in the June weather forecasts. Furthermore, investors are also positioning themselves ahead of the rollover into the August futures contract.
On Tuesday, July Natural Gas futures settled at $2.890 or down $0.40 or -1.38%.
Tuesday’s weakness was expected and the price action performed as expected with price breaking into a short-term retracement zone at $2.899 to $2.877.
The market came in long this week in anticipation of a breakout over the psychological and technical resistance at $3.000. However, when the weather forecast changed to account for milder temperatures over the short-run, bullish investors had to make adjustments to their long positions. This is what the market is going through right now.
In other words, concerns over a supply deficit are enough to give the market an upside bias, but weather worries and concerns over low demand have taken some of the shine off that potentially bullish assessment.
Essentially, the news is good enough to attract buyers on dips, but not bullish enough to drive the market through or even sustain a rally over $3.000. If by chance, conditions changed to the better for the bulls, I think a move to between $3.000 and $3.040 would be a gift to those looking to put on short-term hedges.
We’re getting a technical bounce early Wednesday after yesterday’s test of a technical 61.8% retracement level at $2.877. This comes as no surprise.
At 731 GMT, July Natural Gas is trading $2.908, up $0.018 or +0.62%.
If sellers come in hard again today then we could see a test of the second retracement zone at $2.858 to $2.826.
If the market is in the hands of a big seller then he may want to make some of the weaker speculative buyers sweat a little by driving prices into $2.858 to $2.826. He may be doing it to shake the tree a little and drive out the weak buyers. He may then turn into a buyer at more favorable price levels. It all depends on the weather outlook for the next 10 to 14 days.
The weather is a little murky at this time for traders. Murkiness creates uncertainty and doubt. And “when in doubt, get out” may be the central theme for bulls at this time.
A drop in demand last week-end likely contributed to Monday and Tuesday’s losses. It may have been strong enough to offset forecasts of warmer-than-average weather for most of the U.S. However, that is old news.
The outlook from NatGasWeather.com suggests we could be looking at a sideways, rangebound trade as their forecasting model was a little hotter trending through the middle of next week, but then cooler trending and still not hot enough June 16-20.