Natural Gas Price Fundamental Daily Forecast – Outlook for Cooler Temperatures Sinks Prices
Natural gas futures plunged on Tuesday as investors reacted to reports of cooler-than-average temperatures over the next 10 days throughout key demand areas in the central and northeastern U.S.
July Natural Gas settled at $3.145, down $0.165 or -4.98%.
The U.S. National Weather Service is calling for cooler-than-average temperatures over the next six to 10 days. This caught long investors by surprise because the new forecast contrasts with the most recent three-month temperature outlook from the NWS, which forecast a warmer-than-average summer for much of the U.S.
The shorter-term outlook for May 30 to June 5 from natgasweather.com calls for a weather system with showers and cooler than normal temperatures to track across the northern U.S. the next several days. Over the southern and central U.S., temperatures will be very warm to locally hot with 80s and 90s, although with a weak system tracking through the Southwest and into Texas.
The West will remain very warm this week, apart from occasional cooling into the NW. Overall, natural gas demand remains slightly stronger than normal.
Forecast
Based on the two weather forecasts, it looks as if investors are following the NWS forecast more closely. They are concentrating on the word “cooler” because we are entering June and they want to see the word “hotter”.
Supply is still high, but investors were counting on a hot summer to take care of that factor. Instead, the forecasts for cooler temperatures are conjuring images of a summer without heat. Based on the current downside momentum, it looks as if sellers are going to be in control, and buyers are going to be scarce unless heat is put into the forecast, or a tropical storm threatens the Gulf region.
The main range is $2.888 to $3.506. Its retracement zone at $3.197 to $3.124 is currently being tested. Normally, this is a value zone and very attractive to buyers, but the current price action indicates the new weather forecast has chased the buyers out of the market. So although we may not see a bottom form inside this zone at this time, it should continue to be monitored because it will, at some point in the future, become a key pivot zone.
Adding further to the downside pressure is the news that the market is saturated with hedge fund buyers. In order to regain control of this market, they are going to have to substantially increase their long positions, or liquidate their long positions in the hopes of rebuilding later if the weather forecast turns more favorable.