Sellers came in hard on the opening early Monday, triggering a gap opening on the daily chart. Traders are reacting to a bearish weather forecast.
August Natural Gas futures are trading $2.982, down $0.078 or -2.55%.
According to natgasweather.com, during the June 16 – 22 period, “Overall, natural gas demand will be strong through the weekend then easing Monday through Wednesday. Overall, natural gas demand will be moderate to high.”
Late last week, it was announced that speculators cut U.S. natural gas net longs for the fourth straight week. Speculators are reacting to the unusually high stockpiles, the mild weather and a slow by steady increase in production.
The move represents the most consecutive weekly declines in net speculative longs since the end of February.
At the start of the week, U.S. production over the past 30-days averaged 71.5 billion cubic feet per day (bcfd), topping the same period in 2016 (71.4 bcfd) for the first time since March 2016.
Forecast
Unless there is a major shift in demand in the high population areas, prices are likely to remain under pressure over the near-term.
Oversold technical conditions could trigger periodic short-covering rallies, but the overall trend is likely to be down over the near-term until the weather turns hot in key demand areas of the Midwest and East Coast. Any short-covering rallies are likely to be met by renewed shorting pressure.
If the downside momentum from the gap opening continues then look for the move to possibly extend into last week’s low at $2.936. Taking out this bottom will indicate the selling is getting stronger with the next target the February 28 bottom at $2.910.
If the weather forecasts suddenly start to show the return of heat, we could see a short-covering rally, but the long side won’t get interesting unless $3.127 is taken out with conviction.
This market is likely to trend lower until all the major speculative longs are taken out of their positions.