Natural gas prices are trading sideways to lower early Thursday after taking out key technical support the previous session. Fundamentally, it’s hot now, but this has been priced into the market for about 10 – 14 days. Currently, traders are pricing in a cooling system that is expected to hit mid-month. This news, combined with huge gains in production should be enough to keep the pressure on prices.
At 0844 GMT, August Natural Gas is trading $2.842, unchanged.
Technically, the main trend is down. It turned down on Monday when sellers took out three bottoms at $2.896, $2.891 and $2.883. It’s not going to turn up unless the buying is strong enough to take out $3.021 and $3.043. And this is not likely to occur unless production drops and the heat sticks around for about two weeks.
The main range is $2.727 to $3.043. Its technical 50% to 61.8% retracement zone is $2.885 to $2.848. Traders should remember this retracement zone as we move forward this week because it is controlling the longer-term direction of the natural gas market.
Buying could strengthen over $2.885, but this will essentially be just a relief rally and another opportunity for the short-sellers to tighten their grip. Given the short-term range of $3.043 to $2.822, any rally into its retracement zone at $2.933 to $2.959 is likely to attract new short-sellers.
Things will get more interesting on the downside if sellers can sustain a move under $2.848. This may be the trigger point for a steep plunge. The first target is a bottom at $2.821. If this price fails then look out to the downside because $2.727 is the next target.
Based on the early price action, traders should focus on $2.848 all session. This price is likely to act like a technical pivot today.
Because of the U.S. holiday on Wednesday, this week’s U.S. Energy Information Administration’s weekly storage report has been pushed to Friday. It is expected to show an injection of 76 billion cubic feet for the week-ending June 29 with a range of 57 Bcf to 82 Bcf. Last year, the EIA recorded a 60 Bcf build for the period, and a five-year average build of 70 Bcf.
As of June 22, total stocks are at 2.074 trillion cubic feet from a year ago, and 501 billion below the five-year average, according to government data.