September Natural Gas futures prices fell close to 6.0% last week and closed in a position to challenge the early July bottom at 4.067 and a pair of major bottoms at 4.012.
An easing of the hot temperatures that have plagued the Eastern U.S. for most of July and a drop in second quarter GDP were responsible for most of last week's sell-off. While these two factors took care of the demand side of the equation, news that of a larger-than-expected injection took care of the supply side.
Weather is likely to have the biggest influence on this market over the near-term. Although it is only expected to trigger short-covering rallies, bullish traders will continue to look for hot weather to drive up demand from power plants. Recent forecasts, however, are calling for normal temperatures.
Some traders have even turned to monitoring tropical storms as they may become a threat to natural gas production. Although natural gas production in the Gulf of Mexico only accounts for 7% of U.S. production, this market is so bearish that traders are looking for any excuse to take profits on short positions or speculate by bottom-picking.
The news that the economy is slowing was another blow to natural gas on Friday. Supply could increase further if demand falls because of a weak economy. In addition, if the U.S. invokes severe austerity measures in an effort to pass the debt ceiling hike, the proposed cut in government spending could also hurt demand.
• Weather. Traders will be watching for the forecasts for heat-related news. Hot temperatures drive up demand for electricity which translates into greater demand for natural gas to run the power plants.
• Besides heat, traders will also be looking for tropical storms in the Gulf of Mexico. Although only a small amount of natural gas is produced in this region, any sign of a tropical storm or hurricane is likely to trigger short-covering.
• This week's inventory report is expected to show another increase. Producers continue to inject natural gas into the nation's supply line, keeping downside pressure on prices.
• Technically, this market is in a position to test or break through major bottoms at 4.067 and 4.012. This could trigger a further decline or a major turn to the upside if bottom-pickers step up to stop the decline.
By. FX Empire
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