Natural gas futures closed higher on Thursday as investors reacted to a successful test of a key technical support area and revisions to a previously released government storage report.
October Natural Gas settled at $2.966, up $0.041 or +1.40%.
First the technical factors. The main trend is up according to the daily swing chart. It turned up when the market crossed the August 3 top at $2.888. It was reaffirmed when buyers drove the market through the next main top at $3.025. However, the rally stalled at $3.042, well below the main targets at $3.131 and $3.142.
The current main range is $2.799 to $3.042. Its 50% to 61.8% retracement zone is $2.921 to $2.892. Since the trend is up, this area became attractive to buyers looking for value. They came in on Thursday at $2.886, leading to a breakout to the upside.
The short-term range is $3.042 to $2.886. Its retracement zone at $2.964 to $2.982 is the primary upside target. This zone was tested on late Thursday.
Taking out $2.982 will indicate the buying is getting stronger. This could create the upside momentum needed to overcome $3.042. If buyers can overcome this level then they will have a clean shot at $3.131 to $3.142.
If the rally stalls then natural gas could become range bound between $2.964 and $2.921.
Fundamentally, the U.S. Energy Information Administration’s storage report for the week-ending August 11 was not bullish. It came in at 53 billion cubic feet, above the 51 bcf estimate.
The bullish news was the revisions to figures for previous weeks tied to a reclassification of natural gas in storage from working gas to base gas.
According to the EIA, total stocks now stand at 3.082 trillion cubic feet, down 254 billion cubic feet from a year ago, but 55 billion cubic feet above the five-year average.
Forecast
Weather and technical traders will determine the direction of the natural gas market on Friday.
Natgasweather.com is calling for hot high pressure to return quickly this weekend through early next with much of the country very warm to hot to drive stronger than normal demand. Overall, they expect national natural gas demand to increase to high.
Technical traders are going to be focusing on the upside momentum created by Thursday’s EIA report. This means that buyers are going to have to be willing to buy strength because we already saw the dip yesterday.
If the buying is strong enough to take out $2.982 then we could see another surge to the upside with $3.042 the next upside target.
If there is no continuation of Thursday’s rally then look for prices to become rangebound.