What a difference a week makes. Last week natural gas futures gapped higher. This week futures gapped lower. Both moves were related to the weather. Traders were sellers from the get-go on Monday as the weather over the week-end came in cooler than expected and new models were predicting mild temperatures over the near-term.
At 0423 GMT, August natural gas futures are trading $2.952, down $0.083 or -2.73%.
To recap last week’s fundamentals: The U.S. Energy Information Administration report showed that domestic supplies of natural gas rose by 46 billion cubic feet for the week-ended June 23. This was actually below the 52 billion cubic feet estimate, but apparently it wasn’t bullish enough to sustain the rally.
The EIA also reported that total stocks now stand at 2.816 trillion cubic feet, down 319 billion cubic feet from a year ago, but 181 bcf above the five-year average.
Forecast
Monday’s gap lower opening put the August futures contract on the weak side of a key 50% to 61.8% retracement zone at $2.988 to $3.015. This area is resistance this week. We expect prices to move lower as long as prices remain under this zone.
The selling is taking place despite the news that U.S. natural gas speculators in the week to June 27, boosted their net long positions for the first time in six weeks, betting prices will rise on the possibility there will be less gas than usual in storage for next winter due to low output and rising exports.
One reason for the gap-lower opening may be the so-called “four-day” U.S. Fourth of July holiday. Trading volume is expected to be well-below average on Monday ahead of Tuesday’s bank holiday. Furthermore, demand may drop because consumers are expected to spend less time indoors.
Weather for June 30 to July 6
The new weather forecast supports lower prices early in the week then higher prices later in the week.
According to natgasweather.com, “Cooler than normal conditions will continue across the north-central U.S. into early next week as weather systems with showers result in comfortable highs of upper 60s and 70s. However, temperatures will warm back into the 80s to 90s over the East over the week-end as high pressure returns.”
“It remains hot over much of the West and the south-central US/Texas with highs in the upper 80s to 100s, which will expand to include much of the east-central U.S. this week as national demand increases to above normal levels.”
“Overall, natural gas demand will be increasing to high.”
This article was originally posted on FX Empire