Natural Gas

Natural Gas Price Fundamental Daily Forecast – Short-Covering Rally Catching Traders by Surprise

Despite the government showing a bigger-than-expected weekly injection in yesterday’s storage report, natural gas futures are trading higher on Friday shortly before the regular session opening. This could mean much of the storage build was already priced into the market, or just a price adjustment designed to set up the next shorting opportunity at more favorable price levels.

At 1140 GMT, October Natural Gas is trading $2.908, up $0.034 or +1.18%.

On Thursday, the U.S. Energy Information Administration (EIA) reported a 70 Bcf injection into storage inventories for the week-ending August 24, well above the market consensus of a 65 Bcf build. The 70 Bcf build was significantly larger than both last year’s 32 Bcf build for the week, and the five-year average injection of 59 Bcf.

Working gas in storage was 2,505 Bcf as of August 24, according to EIA estimates. Stocks were 646 Bcf less than last year at this time and 588 Bcf below the five-year average of 3,093 Bcf.

Furthermore, the EIA reported a build of 35 Bcf in the Midwest, 27 Bcf in the East, 4 Bcf in the Mountain, and 2 Bcf in the Pacific and South Central regions.

Forecast

The two-week range is $2.974 to $2.830. The market is currently testing its retracement zone at $2.902 to $2.919. Trader reaction to this zone should determine the near-term direction of the market.

Overtaking $2.919 will indicate that the short-covering is getting stronger. This may mean that traders are becoming concerned about short-term weather concerns than reports of record production.

A break back under $2.902 will signal that short-sellers have resumed control and that the short-covering rally was just designed to allow them to re-enter at more favorable prices.

As far as the weather is concerned, NatGasWeather.com is forecasting for the August 31 to September 6 period, “A cool front with showers and thunderstorms will continue advancing across the Mid-Atlantic and East today into Saturday, cooling highs from 90s to 70s and 80s and reducing national demand. It remains hot over the southern U.S. with highs of upper 80s to 100s for strong regional demand. Hot high pressure will build back across the northern and eastern U.S. late this week-end through next week with highs back into the mid-80s to 90s for another swing to strong national demand. Cooler exceptions next week will be the Northwest.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.