Natural gas futures spiked higher early in the session on Tuesday, but the rally stalled at $3.035, falling short of the last main top at $3.042. Profit-takers likely stopped the rally, leading to a lower close. The price action could be further proof that the hedge funds like buying the dips, but refuse to buy strength until the fundamentals turn bullish.
October Natural Gas futures settled at $2.968, down $0.024 or -0.80%.
The catalyst being the selling pressure on Tuesday was likely forecasts for cooler weather over the next two weeks. This news will limit cooling demand from households and consequently from power plants.
According to the latest U.S. weather model, temperatures were expected to be cooler than normal until early September. This news means a drop in air-conditioning demand is likely. This also means that U.S. gas consumption is likely to fall to 72.7 billion cubic feet per day (bcfd) next week from around 77.4 bcfd this week.
Forecast
The price action suggests October natural gas is likely to remain rangebound until $3.042 is taken out with conviction, i.e. rising buying volume.
The short-term range is $3.042 to $2.886. Its 50% to 61.8% retracement zone is $2.964 to $2.982. This zone could act like a pivot area. Holding above $2.982 will indicate the return of buyers. Falling below $2.964 will mean the selling pressure is increasing.
If selling pressure rises on a break under $2.964 then this could drive the market into the major support zone at $2.921 to $2.892. Taking out $2.886 will change the main trend to down.
Looking ahead to Thursday’s U.S. Energy Information Administration’s weekly storage report, traders expect the report to show utilities likely injected 40 billion cubic feet of gas into storage during the week-ended August 18.
As far as the weather is concerned, there is a wildcard this week that could trigger a short-covering rally. A tropical system is expected to track north into the Gulf of Mexico. It could move into Texas, but if it redevelops, it could move east towards Louisiana.
Keep an eye on the storm because it may lead to a shutdown of natural gas production if it starts to head towards key U.S. interests.
This article was originally posted on FX Empire