Natural gas futures soared on Friday to change the trend to up on the daily chart, but no significant top was taken out on the weekly chart to suggest a major change in trend was developing. This likely means that the spike in prices was fueled by massive short-covering and some speculative buying.

The rally had been building for weeks with prices hitting extremely oversold levels on the technical charts as investors priced in nearly every possible negative event before temperatures finally turned hot enough for a long enough period of time, and across a wide enough section of the country to scare some of the weaker shorts out of the market and to prove a few of the brave speculative buyers right.

Last week, August natural gas futures settled at $2.418, up $0.110 or +4.77%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on July 3 that U.S. supplies of natural gas rose by 89 million cubic feet for the week-ended June 28. The consensus was for a build of 85 Bcf.

Bloomberg predicted a median of 83 Bcf. Reuters was looking for an 85 Bcf injection, with a range of 76 Bcf to 94 Bcf. The ICE EIA Financial Weekly Index futures contract settled on Tuesday at 85 Bcf. ION Energy analyst Kyle Cooper called for an 87 Bcf build, and Natural Gas Intelligence’s model predicted a build of 88 Bcf. NatGasWeather was looking for an 80 Bcf build. This is leaning toward the bullish side.

Last year, the EIA report showed a 76 Bcf injection for the period, and the five-year average stands at 70 Bcf.

Total stocks now stand at 2.390 trillion cubic feet, up 249 Bcf from a year ago, but 152 Bcf below the five-year average, the government report showed.

Short-Term Weather Forecast

According to NatGasWeather for July 8 to July 14, “Cooler temperatures will impact the northern US the next couple of days with highs of 70s to 80s for light demand. The Southern US remains hot with highs of 90s from Texas to the Southeast, with 100s over the Southwest. Hot high pressure over the southern US will expand to include the northern US mid-week with highs of upper 80s to near 90 degrees Fahrenheit returning from Chicago to New York City. A weak system will provide cooling across portions of the northern US late in the week, while a second system brings heavy showers across the Southeast/Florida. Overall demand, will be moderate Monday into Tuesday, then high the rest of the week.”

Weekly Forecast

The current weather forecast is supportive, but the buying is going to have to be strong enough to overcome $2.440 to $2.512 in order to generate enough upside momentum to change the main top at $2.745.

If the rally stalls inside $2.440 to $2.512 then look for a potential pullback into about $2.300 to $2.261. This won’t necessarily be a bad development if counter-trend buyers show up on a test of this area. They will be trying to establish a secondary higher bottom.

The first rally from a major bottom is usually short-covering. The second rally usually indicate the presence of real buyers. I don’t think we’ve seen that yet.

Rising demand could be supportive this week. According to Refinitiv, demand in the Lower 48 states could rise from 87.4 bcfd this week to 90.1 bcfd next week. This is up from the 90 bcfd forecast early last week.

Looking ahead to this Thursday’s EIA Weekly Storage report, analysts are predicting a build of 67 Bcf for the week-ending July 5. That compares with an increase of 55 Bcf during the same week last year and a five-year average build of 71 bcf for the period.