Speculative natural gas longs are likely on life support after last week’s price plunge. Bullish traders received little support from a neutral U.S. Energy Information Administration (EIA) weekly storage report, and new forecasts calling for cooler temperatures the first week of August helped accelerate the selling pressure.
Late last week, Bespoke Weather Services cut its weather-driven demand expectations for the 15-day outlook period by 4.5 gas-weighted days (GWDD) heading into Friday’s session.
“Cooler momentum continues in the weather forecast, with a stronger trough in the 11-15 day time frame in the eastern half of the nation,” the forecaster said. “…Model divergence grows,” as the European model “is much hotter in its surface temperature depiction, but is almost certainly too hot given what it shows in the upper level pattern…There is more blocking in the medium range compared to this week, so the cooling should be more northern focused, with the chance for some modest above normal temperatures in Texas.”
September natural gas futures finished the week at $2.150, down $0.078 or -3.50%.
U.S. Information Administration Weekly Storage Report
On Thursday, the EIA reported a 36 Bcf injection into U.S. natural gas storage for the week ended July 19. Prior to the release of the report, Bloomberg analysts forecast a median build of 37 Bcf. The Ice futures contract settled at 35 Bcf and Natural Gas Intelligence’s model predicted a 33 Bcf injection.
Last year, the EIA reported a 27 Bcf injection for the same time period. The five-year average build is 44 Bcf.
Total Lower 48 working gas in underground storage stood at 2,569 as of July 19, 300 Bcf (13.2%) higher than last year but 151 Bcf (minus 5.6%) lower than the five-year average, according to EIA.
Short-Term Weather Forecast
According to NatGasWeather for July 26 to August 1, “Cooler than normal conditions continue across the Midwest and Northeast today with highs of only 70s & 80s for one last day of light demand. Hot high pressure will rule the West & Plains with highs of upper 80s to 100s, hottest over the Southwest into West Texas. Temperatures will warm across the southern US, Midwest, and Mid-Atlantic Saturday through Tuesday with highs of upper 80s to 90s gaining for a modest bump in national demand. However, additional weather systems with showers and cooling are expected across the Midwest & East mid-next week. Overall, national demand will be increasing to high this weekend and then back to moderate mid-next week.”
Weather systems are expected to bring cooling over the northern and eastern US during the middle of the week, including deep into the Southeast. The will drop temperatures into the 70s and 80s for lighter demand.
The real issue traders will be dealing with over the near-term will be temperatures that just aren’t hot enough to result in smaller than normal builds. Prices could continue to decline as long as the forecasts over the eastern third of the U.S. for the first ten days of August continue to point toward lower demand.
The downside momentum on Friday suggests short-sellers may take a shot at the June low at $2.115.