Following Monday’s slight uptick, nat gas prices turned back down during Tuesday's trade. A healthy storage outlook, soft cash prices and increased output this month have been contributing to the downward momentum. The EIA increased its end of season storage estimate from its June forecast of 3.73 TCF to 3.91 TCF. Aug futures settled 7.2 cents lower at $3.34.
Tomorrow’s storage report is expected to show a build of 58 BCF for the week ended July 4. This would fall in the middle of the 5 yr avg build of 53 BCF and last year’s build of 61 BCF. Fundamentals loosened over the holiday week by more than 1 BCF/day amid a drop in demand and an uptick in supply.
The next 3 storage injections are all expected to exceed the 5 yr avg with the 5 yr avg surplus likely to surpass 200 BCF by mid July. Models are suggesting a 48 BCF injection for the week ending July 11 which would exceed both last year and the 5 yr avg builds of 18 BCF and 41 BCF, respectively.
Near term forecasts are calling for hot conditions across the East and West coasts over the next 2 weeks while the middle of the country will see some variability.
Given the heat will be centered across the most populated regions, demand is expected to strengthen, particularly during the 8-14 day period. Platts pegs power burn to average 46.8 BCF/day over the next week before reaching an average of 48.8 BCF/day during the 8-14 day period.
The market continues to lose ground this morning with the spot month currently trading nearly 13 cents lower on the day.
Weather models overnight lost 2 to 3 cooling degree days while cooler temps in the Midwest today have pushed power burn down 2.8 BCF/day. This, along with a slight decline in LNG feedgas demand, has pushed total consumption down 3 BCF/day to 106.2 BCF/day.
Technical Analysis
Momentum in the natural gas market appears to be turning back down as rally attempts over the past two weeks have been quickly sold back down.
Monday’s bullish reversal by the spot August 25 natural gas contract was met with a wave of selling Tuesday which closed the contract under daily continuation chart 200 day moving average support.
After closing Tuesday’s session at 3.340, down .062, the August contract has broken under Monday’s 3.275 low as support.
The next areas of support are the June 3.199 low followed by 3.090-3.100, and 3.000.
The 200 day moving average is near term resistance at 3.415 followed closely by the 10 day average at 3.420. 40 day moving average resistance is next at 3.520.
10 and 40 day moving average alignment is bearish and the 10 day average is about to cross under the 200 day average.
Fund liquidation may become another bearish factor as the funds were net long over 200,000 contracts as of last Tuesday’s close. Funds may begin to outright short this market.
Moving Average Alignment – Neutral-Bearish
Long Term Trend Following Index – Bullish
Short Term Trend Follow Following Index - Bearish
Relative Strength Index - 42.66
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