Natural Gas Price Fundamental Daily Forecast – Needs Bullish EIA Report to Overcome Weak 15-Day Forecast

Short-covering and position-squaring ahead of today’s weekly government storage report is helping to underpin prices early Thursday. The move represents a slight follow-through to the upside following yesterday’s strong finish.

On Wednesday, prices once again firmed on short-covering and position-squaring as traders ignored calls for moderating temperatures, choosing instead to focus on the government report, which is expected to confirm an improved supply/demand balance.

At 10:06 GMT, September natural gas futures are trading $1.732, up $0.014 or +0.81%.

U.S. Energy Information Administration Weekly Storage Report

At 14:30 GMT, the EIA will release its weekly storage report. Traders are looking for a sub-100 Bcf storage injection for the four consecutive week. The consensus is for a storage injection of 37 Bcf.

Natural Gas Intelligence (NGI) says, “Ahead of the report, a Bloomberg survey found injection estimates ranging from 28 Bcf to 46 Bcf, with a median of 36 Bcf. The average of a Wall Street Journal poll was 35 Bcf, with a low estimate of 28 Bcf and a high of 41 Bcf. A Reuters poll found estimates ranging from 28 Bcf to 46 Bcf and an average of 36 Bcf. NGI estimated a build of 35 Bcf.”

“The forecasts compare with a 44 Bcf storage build in the same week last year and a five-year average increase of 37 Bcf.”

Short-Term Weather Outlook

According to NatGasWeather for July 23-29, “Hot high pressure continues to stretch from California to Texas with highs of mid-90s to 110s, while uncomfortably hot and humid with 90s across the South, Southeast and Mid-Atlantic Coast. The Northwest will cool into the 70s-80s the next few days as a weather system arrives. Cooler expectations will also continue across the Midwest as a weak cool front with showers track through. Heavy showers are expected along the Gulf Coast/Texas Friday-Saturday due to a weak tropical depression. After briefly again becoming hot this weekend across the Great Lakes and Northeast, a cooler trending system will arrive early next week with highs of 70s-80s.”

Hurricane Outlook

It’s that time of year in the U.S. so let’s go over a few things before getting to the short-term forecast. Firstly, hurricanes that move through the Gulf of Mexico toward platforms and natural gas production facilities in Texas, Louisiana and the Florida panhandle, tend to be bullish for natural gas because they can lead to lower production. Secondly, hurricanes that hit Florida tend to be bearish for natural gas prices because they lead to power outages and hence lower demand.

I say this because there are a lot of analysts out there who think that all hurricanes are alike. They aren’t. I live in Florida. I think I should know a little more about the subject than the other guys.

That being said, the National Hurricane Center (NHC) said Wednesday Tropical Storm Gonzalo formed early Wednesday in the Atlantic Ocean. With potential for winds of 75 mph or more, NHC projected the storm would become a hurricane Thursday, though it remained far from land and was more than 1,000 miles east of the Windward Islands, NGI reported.

The hurricane should be monitored since we still don’t know its path. Secondly, it’s in the Atlantic Ocean and nowhere near the Gulf of Mexico facilities. I wouldn’t trade off the news yet.

Daily Forecast

The cash market is weak and the 15-day outlook is shedding cooling degree days. So falling temperatures tend to be bearish because they weigh on demand. Remember, professionals are looking two-weeks into the future so today’s EIA report has to be extremely bullish to generate any meaningful upside pressure.

There are also concerns over demand destruction from COVID-19 and uncertainty over LNG exports to Asia and Europe.

When you add up all the factors, conditions are bearish. Maybe too bearish. Continue to trade the trend, but be prepared for some counter-trend shenanigans by the hedge funds. They may feel the need to generate a rally just to shake the tree a little.

Look for buy stops to be triggered over $1.738 and $1.786 if there is a short-covering rally. The trend turns up on the daily chart over $1.845.

As long as the trend remains down, $1.583 remains the next target. Temperatures will determine how fast we get there.

For a look at all of today’s economic events, check out our economic calendar.