Declining production estimates and indications of stronger heat toward the middle of the month in the latest forecasts helped send natural gas futures sharply higher in early trading Monday. The July Nymex contract was up 46.0 cents to $8.983/MMBtu at around 8:45 a.m. ET.
The July contract was testing the psychologically significant $9 mark in early trading, boosted by domestic production levels that were “stumbling” in the latest estimates and forecasts showing “intensifying heat” by the middle of the month, according to EBW Analytics Group.
“Building heat in mid-June — especially in Texas — may also be awakening fears of another blistering hot summer,” EBW analyst Eli Rubin told clients. “Although a potential recovery in dry gas supply could induce a retest of support any time,” the prospect of increasing cooling demand in the weeks ahead “could ignite another substantial rally in Nymex futures into mid-summer.”
The weekend weather data added cooling demand compared to Friday’s expectations and continued to advertise a pattern that would expand coverage of toasty temperatures from the South to other parts of the Lower 48 later this month, according to NatGasWeather.
“The weekend weather data continued to favor the hot upper ridge over the southern U.S. this week expanding northward June 15-20, with highs of 90s gaining territory over the Plains and Midwest in a relatively bullish set up,” the firm said. “The only locally cooler exceptions for the June 15-20 period are expected across the Northwest and Northeast corners as weather systems track through.”
This week’s trading is poised to bring more “exceptionally volatile” conditions, NatGasWeather said.
“We wouldn’t be surprised if it turns out to be the most violent trading week of the past decade depending on weather and production trends in the coming days,” the firm said.
Meanwhile, from a technical standpoint, coming off a modest gain in Friday’s session, bulls enter the new week in need of “lift off, not congestion,” according to ICAP Technical Analysis.
Bears should be targeting the $8.118 low “to open the door for a deeper retreat,” ICAP analyst Brian LaRose said.
The next downside targets in this case would be $7.728-7.639, $7.350 and $6.916-6.907-6.881, the analyst said.
“And if the bulls find their footing stead to start the week? Expect a run at the $9.401/9.447 highs,” LaRose said.
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