By Sunday the eastern two-thirds of the country turns hot with highs reaching the 80s to 100s. The western and southern United States are already running warm to hot with interior California, the Southwest and Texas seeing highs in the 90s to 100s. When that kind of heat settles across the major population centers, air conditioning load pushes power burn well above seasonal norms.
The market reversed Thursday’s EIA selloff because traders are already looking past Saturday’s moderate demand into next week’s heat. A 76 Bcf build matters less when the following week’s injection could come in well below average on elevated cooling demand. That is the trade the market is making right now and the midday reversal confirmed it.
LNG Exports and Production Are Tilting the Balance
LNG exports continue to pull gas out of the domestic market. Rising feedgas flows to export terminals remove supply from the system regardless of what weather demand does. On top of that, domestic production has been slightly lower in recent weeks. When exports are climbing and production is easing at the same time, the surplus erodes faster than the weekly storage headline suggests.
The 152 Bcf above the five-year average is shrinking. Two months ago the bears were pointing to that surplus as the reason this market could not rally. The year-over-year comparison has already flipped to a deficit. If LNG flows stay strong and the heat forecasts verify through early July, the five-year surplus starts closing fast.
Seven Days Above the 50-Day and the Base Keeps Building
The 50-day moving average has held as support for seven consecutive sessions now. That is not a market that is trying to break down. Sellers have had the storage data on their side for weeks and they still cannot push this market below the 50-day. The progression of higher lows from April and May is intact underneath the current price.
The resistance overhead at $3.377 and $3.418 has been capping rallies but the buyers keep coming back. The market needs a catalyst to break through and sustained heat starting Sunday could be it. Sellers are not going to chase shorts near $3.00 in late June with the entire summer demand season ahead of them. The risk-reward on the short side is getting worse by the week while the long side has weather, tightening storage comparisons and rising LNG demand working in its favor.
What to Watch
Sunday’s heat forecast is the near-term catalyst. If the hot pattern verifies across the eastern two-thirds of the country and persists into early July, next week’s storage injection could come in well below the five-year average and the year-over-year deficit widens further. That is the sequence that breaks through the resistance the market has been sitting under all week.
August natural gas has held the 50-day for seven straight sessions and the buyers keep defending every dip. The overhead resistance is the last thing standing between this base-building phase and a real breakout. A sustained heat wave starting Sunday with LNG exports still climbing and production easing is the combination that gives the bulls the catalyst the technical setup has been waiting for.
