August natural gas futures have grown more oversold by the day in July, tumbling past multiple technical levels to converge with spot cash prices and put $2/MMBtu psychological support into view.
“August has been in extreme oversold territory pretty much for all of July so far, but that still wasn't enough to prevent August from establishing a new all-time low below $2.150 on Monday,” according to NGI’s Pat Rau, senior vice president of Research & Analysis.
The August New York Mercantile Exchange (Nymex) contract settled at $2.158 on Monday, down 17.1 cents day/day, but off its low of $2.147. In early trading Tuesday, August futures were reversing some of their losses, up 2.9 cents to $2.187 as of 9:10 a.m. ET.
The prompt month, lower in 11 of the past 14 sessions, was down by nearly a third since mid-June. The slide put the August contract below cash prices for two days in early July, according to NGI data.
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“Essentially, August has converged with the July spot market,” Rau said. “NGI's July day-ahead Henry Hub spot index has averaged $2.190 so far this month and August is now trading in line with NGI's Henry Hub price of $2.120 for July 16 flow.”
If the August contract were to rebound, it would face first resistance at failed support of $2.207 followed by the $2.37-2.40 range, Rau said. To the downside, near-term support for the August contract was likely to exist “at the higher end of current July Henry Hub cash prices and psychological support at $2.00.”
Selling pressure was evident in the latest market positioning for the week ending Tuesday, July 9, in Friday’s Commodity Futures Trading Commission’s (CFTC) Commitments of Traders report.
Professional speculators increased net short position for a second week, according to the CFTC report. It continued a trend begun a week earlier. Traders added 84,000 net short contracts in the two weeks to July 9, according to EBW Analytics Group’s Eli Rubin, senior analyst.
The added shorts came as former Hurricane Beryl made landfall in Texas on July 8. The storm cut power across the Houston region, reducing natural gas-fired generation and sidelining Freeport LNG Development LP’s terminal. The liquefied natural gas export facility is expected to slowly start up this week.
“The sharp shift in sentiment is hardly surprising as cooling demand continues to fall short of forecasts, supply rises, Beryl disruption endures, and technicals point south toward $2.00,” Rubin said.
However, the increased short positioning raises the risk of another sizable short covering-fueled rally over the next month or so, he said.
