Natural gas futures were exploding higher early Tuesday, extending the previous session’s rally as traders continued factoring in searing heat and the upcoming front month contract expiration.
The August Nymex contract, which rolls off the board on Wednesday, was soaring 68.6 cents higher to $9.413/MMBtu at around 8:45 a.m. ET. September was up 55.9 cents to $9.130.
The August contract posted a 42.8-cent rally in Monday’s session, which followed a 36.7-cent surge in last Friday’s trading.
Looking at fundamental explanations for the recent rally, hot temperatures in the forecast appear to be “the predominant bullish driver,” according to EBW Analytics Group senior analyst Eli Rubin.
The surge could also reflect “a market adjustment to last week’s overwhelmingly bullish storage report,” the analyst added.
Still, Rubin also pointed to “trading dynamics” as a key factor behind the rallying prices.
Traders holding short positions have been “forced from the market over the $3.50 rally of the past three weeks,” the analyst said. “Thin liquidity during contract expiration further increases the risk of fireworks over the next two sessions. When the rally cools, however, a significant retest of support is overdue.”
Looking at the technicals, only a “big cluster of resistance” from $8.606 up to $9.115 is preventing prices from breaking out to the upside, according to ICAP Technical Analysis.
“At this time, I am not seeing any obvious signs of a top,” ICAP analyst Brian LaRose told clients ahead of Tuesday’s session. “So, unless the bears can quickly change that, we could be setting our sights higher heading into August.”
The next steps higher in terms of resistance targets would be $10.299-10.554, $11.070-11.113, $11.453-11.681, $12.021 and $12.710, according to LaRose.
Looking at the latest forecast changes, Maxar’s Weather Desk continued to observe “widespread aboves” in the temperature outlook for the 11- to 15-day period, from Aug. 5-9.
Exceptions were “tied to a continued active Southwest monsoon and models that are closer to normal along the Gulf Coast,” Maxar said.
The Great Lakes and mid-South underwent warmer trends early during this period, according to the forecaster.
For the six- to 10-day period, from Sunday through Aug. 4, Maxar noted cooler adjustments in the Northwest and slight hotter trends in the mid-South.
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