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Natural Gas Price Fundamental Daily Forecast – Milder Temperatures Coming Later This Week

By:
James Hyerczyk
Published: Dec 10, 2018, 10:06 UTC

We may have seen the high of the week earlier in the session on Monday if the forecast stays the same. Genscape is saying that frigid conditions were expected to keep gas demand holding strong on Monday and Tuesday at 95.8 Bcf/d. Demand was then expected to quickly drop into Wednesday at 89.2 Bcf/d and then continue to shed an average 0.38 Bcf/d through the following seven days, the firm said.

Natural Gas

Natural gas futures gapped higher on the opening as investors reacted to a cold weekend in several key demand areas and higher spot market prices. The early move was not a surprise since Friday’s impressive rebound rally and higher close signaled that momentum had shifted to the upside.

After the higher opening, the market surged to $4.663 before sellers came in to stop the rally and nearly drive prices lower for the session. Aggressive buyers drove the market through the last minor top at $4.630, hoping they’d attract enough momentum buyers to perhaps drive the market to the next minor top at $4.776. Instead sellers stepped in, likely reacting to forecasts for milder temperatures.

At 0949 GMT, January Natural Gas futures are trading $4.519, up $0.031 or +0.65%.

Natural Gas
Daily January Natural Gas

Last Week’s Recap

Natural gas futures settled lower last week, but losses could have been worse if not for a strong short-covering rally on Friday. The market was under pressure most of the week because of inconsistent weather forecasts calling for milder temperatures starting late this week. Prices were further pressured after the weekly U.S. Energy Information Administration (EIA) report showed a larger-than-expected build in storage. The market posted a sharp recovery on Friday on short-covering ahead of the week-end and on increased demand in the spot market.

The EIA storage report showed a 63 Bcf withdrawal from storage stocks during the week-ending November 30. Although this was a little on the high side of the estimates, traders hardly reacted because their focus had shifted to reports that said chillier temperatures could return before the end of the month.

Forecast

According to NatGasWeather.com for the period December 10-16, “Cold air will continue to cover much of the country to open the week as lows reach the 0s to 20s across the North, with upper 20s to near 40 degrees Fahrenheit over the South and Southeast. There are two notable weather systems, one tracking through the Southeast with rain and snow, but exiting Monday. A second system is moving into the West, then tracking into Texas and the South Wednesday-Thursday. Milder conditions will spread across the northern 2/3 of the country as the week progresses with highs of 40s to 60s for lighter demand. Overall, national demand will be high through Tuesday then moderate.”

We may have seen the high of the week earlier in the session on Monday if the forecast stays the same. Genscape is saying that frigid conditions were expected to keep gas demand holding strong on Monday and Tuesday at 95.8 Bcf/d. Demand was then expected to quickly drop into Wednesday at 89.2 Bcf/d and then continue to shed an average 0.38 Bcf/d through the following seven days, the firm said.

Other forecasters are showing even warmer temperatures once this cold snap passes. According to Genscape, day/day changes to the six to 10-day weather forecast have removed about 0.3 Bcf/d from last Thursday’s demand forecast. “Day-over-day changes to the longer-range 11-to 15-day forecast have shown even more warming than previously expected, resulting in the removal of about 1.6 Bcf/d of demand in the forecast.”

The return of warmer temperatures should put a lid on prices and may even fuel a further correction. Prices aren’t expected to fall too far because of the storage deficit, and because some bullish traders are already looking at the return of colder temperatures near the first of January. I expect to see heightened volatility in the form of a choppy, two-sided trade.

Looking at the daily chart, the direction of the January Natural gas market the rest of the session is likely to be determined by trader reaction to the short-term retracement zone at $4.557 to $4.431.

A sustained move over $4.557 will indicate the presence of buyers and a possible change in the near-term forecast. A sustained move under this level will signal the presence of sellers, but don’t expect an acceleration to the downside unless $4.431 is taken out with conviction.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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