Medium term
Trade view / 04 August 2016 at 23:09 GMT

Natural gas demand may fade after temperatures peak

Managing Partner / Spotlight Group
United Kingdom
Instrument: NGU6
Price target:
Market price:

US natural gas futures jumped in US trading on Thursday following data that indicated natural gas supplies in storage in the US fell unexpectedly last week. This followed a recent heat wave that prompted households to ramp up usage on their air conditioners.

A “heat dome” brought triple-digit temperatures across the US at the end of last week and the continued this week.

US temperatures (in Farenheit)
US Weather

Source: The Weather Channel

Meanwhile, updated weather forecasting models point to mostly mild weather across most parts of the US in coming days. The chart shows that while temperatures are high, but they have not hit triple digit levels. So there is a view that higher summer demand for the commodity is coming to an end.

Demand for natural gas tends to rise in the summer months as warmer temperatures increase the need for gas-fired electricity to power air conditioning.

Natural gas for delivery in September on the New York Mercantile Exchange have risen by 2.5 cents, to trade at $2.864/Mm BTU. Prices were at around $2.837 before the release of the supply data.

A day earlier, prices surged 10.6 cents, or 3.88%, as traders placed wagers that this week's storage data would be on the bullish side. For that reason, in the aftermath the really short time technicals, that is one minute to 30 minute technicals, are listed as “strong sell” and the one hour is “sell”.

The US Energy Information Administration said in its weekly report that natural gas storage in the US in the week ended July 29 declined by 6 billion cubic feet; that compares to forecasts for an increase of 2bn. To give that some colour, last week there was a build of 17bn cubic feet in the preceding week, 41bn a year earlier and a five-year average of 54bn cubic feet.

Short-term trend, natural gas
Nat Gas

Source: Spotlight Ideas  

I am torn, as the longer time technicals call for a buy and strong buy. However, I have to consider the temperature perspective.

So I will sell into the recent impulsive trend, which may be fading.  

Long term trend for natural gas

Management and risk: 

Parameters: Natural Gas Sep 16 NGU6 USD / Mm BTU

Entry: Sell 2.831 20:54 BST

Targets: 2.740 ... 2.471 ... 2.360

Stop: 3.060

Time horizon: Medium term

— Edited by Robert Ryan

Non-independent investment research disclaimer applies. Read more


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