Natural Gas Price Fundamental Daily Forecast – Large Storage Build Could Trigger Steep Break

Natural gas futures are trading lower on Thursday shortly before the cash market opening. The selling is being fueled by lower spot market prices and position-squaring ahead of the weekly government storage report. The short-squeeze appears to be over which makes the market vulnerable to a sharp break. Traders are also monitoring a tropical disturbance near the Bahamas that could make its way into the Gulf of Mexico over the week-end or early next week.

At 11:16 GMT, October natural gas futures are trading $2.522, down 0.030 or -1.18%.

Traders are looking for a rather large weekly inventory build this week, which could confirm the possible end to the short-covering rally. In the spot market, moderating temperatures are putting a drag on demand, which is also weighing on prices.

Technically, Wednesday’s closing price reversal top is a pretty strong sign that the selling is greater than the buying at current price levels. This could lead to a sizable correction with $2.387 the minimum downside target.

U.S. Energy Information Administration Weekly Storage Report

Traders are looking for today’s EIA storage report for the week-ending September 6 to show another above-average build.

Bloomberg analysts are estimating a median build of 81 Bcf with a range of 75 Bcf to 91 Bcf. Reuters analysts are looking or an 82 Bcf injection, with a range of 76 Bcf to 94 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at 83 Bcf. Natural Gas Intelligence’s model predicted an 86 Bcf injection. Energy Aspects issued a preliminary estimate of 86 Bcf for this week’s report.

Short-Term Weather Outlook

According to NatGasWeather for September 11 to September 17, “Unseasonably strong high pressure will dominate the southern and eastern/east-central US with highs of 80s and 90s for strong late season demand. The Northwest, Rockies and Upper Midwest will be unsettled with showers and highs of 60s to 70s for light demand. The important corridor from Chicago to NYC will be comfortable to a touch warm with highs of 70s to mid-80s. Overall, demand will be high across the southern US and up the East Coast and moderate-low across the rest of the US.

Tropical Storm Watch

The National Hurricane Center (NHC) was monitoring a disturbance near eastern Cuba and through the southeastern Bahamas that it said had a 40% chance of cyclone formation over the next 48 hours.

“Conditions are forecast to become more favorable for development this week, and a tropical depression could form near the northwestern Bahamas or South Florida as early as Friday,” the THC said. “Further development is possible over the eastern Gulf of Mexico later this weekend.”

Daily Forecast

A larger than expected storage build could trigger a steep break especially since there are weak longs trying to prop up the market after the short-covering. Like I said earlier in the week, short squeezes tend to end ugly.

As far as the storm is concerned. It should be bearish for prices if it hits Florida because it will drive down cooling demand. If it makes it into the Gulf of Mexico and picks up strength then it could be bullish if it threatens the natural gas infrastructure near Louisiana and Texas.