Natural gas futures finished lower on Friday as investors continued to price in forecasts calling for modestly cooler temperatures over the short-run. However, there’s still hope for the bulls since some weather services are calling for hot temperatures through the end of July and into early August. Furthermore, the daily chart pattern is still suggesting the market is still in corrective mode, following the recent rally and change in trend to up.
On Friday, September natural gas futures settled at $1.765, down $0.011 or -0.62%.
Bespoke Weather Services is among the few forecasters calling for more heat, more demand and the possibility of another surge to the upside. Their analysts see scorching summer temperatures through late July and into early August, fueling strong national cooling demand and setting up this month to be one of the hottest Julys on record in terms of gas-weighted degree days.
“Prices declined this week, thanks to some weakening in the level of heat in the forecast,” the firm said. However, “it is worth pointing out that even with the cooler forecast changes, we remain on pace to rival July 2011 for the hottest July on record,” as measured by national gas-weighted cooling degree days, “thanks to persistence and areal coverage of heat more than extremes in any one given region.”
Traders are becoming increasingly concerned about rising COVID-19 cases and the potential for renewed restrictions and lockdowns leading to the return of demand destruction, but not enough to ignore the potential bullishness of the heat.
Analysts at Tudor, Pickering, Holt & Co. (TPH) seem to be leaning toward the bearish side, while the experts at Bespoke maintain a bullish short-term outlook.
TPH analysts are already pricing in a build of 40 Bcf into storage for the week-ending July 17. “Which would be slightly above seasonal norms of 34 Bcf, despite strong weather. And that’s the rub: without strong weather demand, inventories likely continue to expand versus the five-year and set up for a capacity crunch this fall, which drives a downward skewed risk-return profile for the balance of injection season.’
Bespoke analysts are saying that as long as the heat remains until the end of the summer season, it could be able to ward off containment threats related the massive jump in COVID-19 cases.
“The containment concerns will not go away anytime soon,” Bespoke said, but strong summer heat continues to materialize in forecasts, supporting expectations for ongoing and substantial cooling demand. “Nothing has changed to sway us away from our bullish view.”