Weekly weather forecast
According to NatGasWeather from August 14 to August 20, “Very hot to very warm conditions will continue in the western and southern United States with highs of 90 and 100, the warmest California and Southwest. Comfortable highs of 70 to 80 will bring slight demand from the Midwest to the Northeast as the weak systems pass. Stronger weather systems will arrive in the eastern half of the United States next week with highs of 70 to 80 for moderate national demand although very warm in the west.
It’s hard not to think the natural gas market will be bullish this week, given Friday’s strong performance. However, the trend in recent years has been to sell the price spikes on the upside, so we have to stick to this style of trading.
Momentum was strong at the end of the week so there may be a delay. Changing fundamentals may be enough to support the market, but probably not enough to support a rally in the medium to long term.
Friday’s rally was a surprise and may have been fueled by massive short coverage. If short hedging was the source of the rally, prices will pull back or consolidate this week, especially if the forecast shows cooling temperatures, higher production and lower LNG demand.
Our weekend work suggests that Friday’s surge was fueled by a reaction to higher spot prices in California, which may have caught traders off guard. If users take control over prices, futures could pull back, but if prices remain high in the region, natural gas futures could remain underpinned.
Basically this week it comes down to business momentum or fundamentals. For the market to continue the rally, traders on the bullish momentum will have to continue to ignore fundamentals. If fundamental traders decide to stop the rally by hedging the move, then the upward momentum could stop.