Another short-covering rally driven by above-normal weather forecasts and a deepening bearish sentiment helped drive natural gas futures back toward a 1-month high in today's trade.
The spot October 15 contract topped out today just under the 2.800 level but sold back off in late trade dropping back toward the lower-2.700 level by the session's close.
The latest 6-10 and 8-14 day National Weather Service forecasts remain above-normal for almost the entire U.S. keeping active a string of hotter temperatures that has been in place since early-August.
However, time is running out for the summer cooling season as end of September above-normal temperatures mean much less for natural gas demand than they do in the heart of the summer.
Storage may not reach a new all-time high as originally forecast but should be in the 3,800-3,900 Bcf range by the end of October.
Dry-gas production which has fallen from a 74.3 Bcf per day high in December 2014 to a current level of 72.5 Bcf per day is finally getting noticed as the natural gas rig count has fallen to a new all-time low of 196 rigs. At some point, the declining rig count will matter as the backlog of dug but yet untapped wells is exhausted. This backlog which was reportedly 5,000+ wells just 3 years ago has declined to a current level under 2,000 according to some industry analysts. Banking credit lines to the less efficient producers could also be exhausted dropping production even further.
Lower prices in both natural gas and crude oil from which associated gas is produced has begun to impact production of natural gas which could become a bullish factor later this year or early-2016.
But the market will likely see at least one more substantial sell off to a new spot price low in upcoming trade before a final seasonal low for 2015 is set.
Don't be fooled by recent strength in the market as it is just another short-squeeze similar to many seen over the past summer.
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