Natural Gas Price Fundamental Daily Forecast – Heat for First Week in August Fueling Short-Covering Rally

Natural gas futures are trading higher on Monday shortly after the regular session opening. Cheap prices drew the attention of speculative buyers and bottom-pickers early in the session, reversing selling pressure that had driven prices to their lowest level since July 2.

Technical factors could play a role into the short-term direction of the market this week with natural gas currently in a position to post a potentially bullish closing price reversal bottom. Traders are also straddling the lower level of a major retracement zone at $2.296 to $2.253, which could act like a short-term pivot.

At 13:45 GMT, September natural gas is trading $2.271, up $0.043 or +1.93%.

Fundamentally, a hotter-trending forecast over the last week-end in July and into early August is helping to lift prices. Over the week-end, the forecasts showed a cooling off over the next several days, but then hotter over the next six to 15 days, according to Bespoke Weather Services.

“There is a northern focus to the heat after this week, with the South, for now, not seeing anomalous heat throughout the 15-day period,” Bespoke said. This is helping to keep forecast gas-weighted degree day (GWDD) totals “somewhat in check, but we still look to run a little hotter than normal to close out the month of July and begin the month of August, having around 5-6 total forecast GWDDs since Friday afternoon.

“…Balance data from the weekend remained rather weak, with burns continuing to look unimpressive relative to the GWDDs in place, and production having moved higher over the weekend.” Liquefied natural gas exports “are a little lower as well after hitting new highs late last week.”

EBW Analytics Group CEO Andy Weissman said, “This morning’s model runs call for cooler weather in Week 1 but hotter in weeks 2-3.” He also added, “This forecast shift could boost prices a few cents this morning. Projected temps in weeks 2-3, however, are not nearly as hot as they were the past few days. With cash prices at Henry Hub averaging just $2.275 last Friday and likely to remain depressed, a sustained rally is improbable. We expect further declines before summer ends.”

Daily Forecast

We tend to agree with EBW Analytics Group CEO Andy Weissman. We think the market is poised for a short-covering rally due to technical oversold conditions, but that major sellers will be waiting for the move with refreshing orders.

A sustained move inside $2.253 to $2.296 will indicate a neutral state. A sustained move over $2.296 will indicate the short-covering is getting stronger. A sustained move under $2.253 will signal a resumption of the downtrend.