Natural gas futures moved higher early in the session on Monday before turning lower. Production and weather-induced demand is expected to drive the price action the rest of the session.
At 0403 GMT, September Natural Gas futures settled at $2.849, down $0.004 or -0.14%.
Natural gas futures were driven higher last week following the release of a bullish weekly government storage report. Prices popped higher Thursday after a government report showed a smaller-than-expected storage build, setting the tone for a strong finish for the week.
The U.S. Energy Information Administration announced a storage build of 35 Bcf in the week-ended July 27, raising U.S. inventories to 2.308 Tcf. Total stocks are 688 Bcf now below inventories one year ago and 565 Bcf under the five-year historical average.
Short-Term Weather Forecast
According to NatGasWeather.com for August 6 to August 9, “A cool front with showers and thunderstorms over the east-central U.S. will fizzle as it runs into strong upper high pressure building into the East Coast where highs of upper 80s to 90s will be on the increase. There will be cooling across the Northwest into California the next several days as a weather system races through, although still hot over the Southwest with highs of 90s to 110F. Hot high pressure will expand to dominate most of the country thru Tuesday with 90s gaining ground, then easing last next week as weather systems return across the central and eastern U.S.”
For weeks, speculators had ignored the low levels of weekly injections and the relatively wide storage deficit, thinking that with production at record levels, the deficit would become a non-factor by the end of October. However, this all seemed to change last Thursday and Friday.
Last week’s rally positively affected the nearby futures contract, which reflects concerns about looming hotter temperatures, and the deferred futures contracts, which means traders are worried about having enough supply at the start of the winter heating season.
Today, the direction of the market will be determined by the temperature forecast for August 14 and beyond and whether production can keep up with demand.
Technically, the direction of the September Natural Gas market this week is likely to be determined by trader reaction to the retracement zone at $2.831 to $2.869.
A sustained move over $2.869 will indicate the speculative buying or short-covering is getting stronger. The inability to overcome $2.869 and a sustained move under $2.831 will signal the return of sellers.