Based on the early price action, it looks as if natural gas traders were not surprised by the week-end’s weather. The slight gap opening suggests that maybe there was a little more demand than expected.
At 2050 GMT, August Natural Gas futures are trading $2.890, up $0.026 or +0.91%.
The price action also suggests that the market is oversold and currently trading in a value area. Last week, sellers had a chance to take out the November 9, 2016 main bottom at $2.815, but the selling pressure stopped at $2.832.
Furthermore, the government reported on Friday a bigger build than forecast. The market went down on the news, but there has been no follow-through the downside. This could be another sign that aggressive counter-trend buyers are coming in to defend the market against another steep sell-off.
Last Friday, the U.S. Energy Information Administration (EIA) reported that U.S. natural gas stocks increased by 72 billion cubic feet for the week-ending June 30. Traders were expecting an injection of about 63 billion cubic feet. Natural gas inventories rose by 46 bcf the previous week and 39 bcf a year ago.
The EIA also reported that U.S. working stocks of natural gas totaled about 2.888 trillion cubic feet, around 187 bcf above the five-year average of 2.701 tcf and 285 bcf last year’s total for the same period. Working gas in storage totaled 3.173 tcf for the same period a year ago.
Forecast
The early price action suggests the early presence of buyers or the lack of sellers. They may be reacting to forecasts of hotter temperatures this week.
According to natgasweather.com, “Hot high pressure will continue to dominate he western, central, and southern U.S. with highs of upper 80s to 100s.”
“During the middle of next week, hot high pressure will intensify and expand to cover most of the country besides the NW and NE corners, resulting in much stronger demand.”
“Overall, natural gas demand will be high besides the northeastern US.
The only bearish factor appears to be the forecast for cooler temperatures in the highly populated Great Lakes and portions of the Northeast.
If buyers continue to support the $2.832 to $2.815 area then this may be enough to scare a few of the shorts out of the market. If this occurs and the weather is hot then this may be enough to fuel a short-covering rally this week.
This article was originally posted on FX Empire