August natural gas futures are riding higher before rolling off the board next week with speculator positioning and technical levels providing support.
However, the question to be resolved over the next seven days remains whether futures can maintain gains “following the technical correction that was sparked by a bullish storage report last Thursday,” noted NGI’s Pat Rau, senior vice president of Research & Analysis.
The August New York Mercantile Exchange (Nymex) contract bounced off lows near $2.000/MMBtu last week to settled at $2.251 on Monday. In early trading Tuesday, that price strength was wavering, with the contract down 5.0 cents to $2.201 as of 9:21 a.m. ET.
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That was near a previous reactionary low in the $2.20-2.21 range, according to Rau. For August to maintain technical support, the contract would have to remain above immediate technical support at $2.14, and it “certainly cannot drop below psychological support at $2.00,” he said.
Beyond technicals, the contract would navigate a first round of producer earnings calls this week, an expected light inventory build on Thursday, and hotter forecasts boosting near-term demand for gas. NGI’s spot Henry Hub price jumped 31.0 cents day/day to $2.195 on Monday amid warmer expected weather and weaker wind generation.
September Shorts
Market attention would then shift to the September contract when it takes over as the prompt month next Tuesday, July 30.
The September contract’s technicals show it is “deeply oversold” like August, Rau said. However, in bulls’ favor, the September contract “has taken out the steep downward sloping channel that had been gripping the contract” since it made a recent high of $3.193 in mid-June.
Technical resistance for the September contract lies around $2.365, with immediate support by the breakout from the downward channel at $2.17, he said.
In the meantime, the September contract was expected to take guidance from August contract trading, Rau said.
However, when September becomes the prompt month, “the market is set to increasingly look past bullish near-term storage draws and toward post-summer demand declines and anticipated autumn supply increases – extending recent weakness,” according to EBW Analytics Group’s Eli Rubin, senior analyst.
In terms of market positioning, traders added to short positioning in the latest data for natural gas futures in the week ending Tuesday, July 16.
Rubin noted an increase of speculator short positions in Friday’s Commodity Futures Trading Commission’s (CFTC) Commitments of Traders report. Rubin said the rise of short positions has acted as a loose indicator of approaching short squeezes, or a rally in prices caused by traders buying contracts to close out short positions.
Analysts at Mobius Risk Group said heavy selling pressure ranking in the 89th percentile in 10-year data emerged on Nymex Henry Hub gas futures in the latest CFTC data.
Money managers’ net Henry Hub interest fell by 229 Bcf to minus 560 Bcf in the week for a fifth week of net short gains, Mobius analysts said. Speculator shorts added more than 1,045 Bcf of bearish holdings in the three weeks to July 16, the most since February, the analysts said.
