Natural Gas Price Fundamental Daily Forecast – May Form Minor Top, but 15-Day Forecast Remains Bullish

Natural gas futures surged to a multi-year higher earlier in the session before pulling back into the mid-session. The rally was fueled by excessive summer heat in parts of the country and soaring cooling demand. Despite the early strength, some analysts are saying it could be short-lived with a new forecast calling for a slight dip in temperatures. This sets up the market for volatile, two-sided trading later this week.

At 16:23 GMT, September natural gas futures are trading $3.685, up $0.113 or +3.16%.

“With forecasts calling for 13.39 day-ahead” cooling degree days (CDD), “gas prices at Henry Hub rose 15.5 cents to average $3.565, with high prices at most other hubs nationally,” the EBW analysts said. “The cash market remains extremely tight this morning, sending futures even higher. Later this week, though, CDD are forecast to fall to as low as 8.49, reducing weather-driven demand significantly.”

The firm is also saying that commercial and industrial demand is expected to decline because of the July Fourth holiday.

“The resulting steep decline in total demand could trigger a brief pull-back in both cash and futures,” the EBW analysts said. “The August contract should be able to hold on to most of its gains, though, due to the expected return of heat later in the month” and an ongoing ramp-up in liquefied natural gas (LNG) demand.

Natural Gas Intelligence (NGI) reported that in its overnight forecast, NatGasWeather noted a loss in total CDD but said the forecast remains bullish overall amid hot conditions projected over the next few days and again in the eight- to 15-day time frame.

“National demand is still expected to increase July 6-13 to strong levels as upper high pressure strengthens over the southern, central and eastern U.S. with widespread highs of mid-80s to 100s,” NatGasWeather said. “What helps make the pattern bullish is a rather hot pattern for the 11- to 15-day period is expected to hold through mid-July to keep national demand strong.”

NatGasWeather also said it expects the inventory deficit to the five-year average to increase to close to 200 Bcf by mid-July.

Short-Term Outlook

Despite the early surge to $3.784, the market is showing some signs of selling pressure at the mid-session. The direction of the September natural gas futures contract into the close will be determined by trader reaction to $3.572. A close below this level could trigger the start of a 2 to 3 day correction.

The conditions are ripe for a minor correction, but I dont see a change in trend taking place unless the two-week forecast suddenly turns bearish.