Natural Gas Price Fundamental Daily Forecast – Could Be Setting Up for Short-Squeeze

Natural gas futures are trading higher on Friday after forming a potentially bullish technical chart pattern on the daily chart in reaction to a much larger-than-expected storage withdrawal on Thursday. Traders remain a little skeptical about the move, however, because the weather outlook for the early part of 2020 is not supportive for increasing demand.

At 13:31 GMT, February natural gas is trading $2.307, up $0.42 or 1.90%.

Spot Prices Weaken

According to Natural Gas Intelligence (NGI), “Spot gas prices also continued to slide across the board, with the Northeast finally joining the rest of the country by sending prices much lower for Friday gas delivery.” The NGI Spot Gas National Average tumbled 45.0 cents to $2.955.

Short-Term Weather Outlook

Natural Gas Intelligence (NGI) also added, “With this week’s Alberta Clipper storm now in the rearview mirror, attention turned to weather patterns for the rest of the year and into 2020. Weather models this week have continued to trend warmer and the latest data hints that the mild setup could last longer into January than initially forecast.”

NatGasWeather said, “The Global Forecast System (GFS) and European models both lost a few heating degree days (HDD) overnight, with a very bearish pattern still favored December 20-30 as upper high pressure dominates most of the country besides the West.”

“Although the GFS teases that cold air could return at the turn of the year, the outlook remains far from frigid,” according to the weather forecast service.

“It will take much colder weather maps in early January to rid current strong bearish weather headwinds, yet prices have held up quite well this week despite this fact,” NatGasWeather said.

U.S. Energy Information Administration Weekly Storage Report

The EIA on Thursday reported a 107 Bcf withdrawal from natural gas storage for the week-ending December 13. The reported draw was well-above the consensus estimate of 87 Bcf and was even several Bcf above the highest projection in market surveys.

Total stocks now stand at 3.411 trillion cubic feet, up 618 billion cubic feet from a year ago, but 9 billion cubic feet below the five-year average, the government said.

Daily Forecast

The main trend is down, but momentum shifted to the upside following Thursday’s closing price reversal bottom and today’s subsequent confirmation of the chart pattern. The main trend will change to up on a trade through $2.351.

On the downside, support is a short-term retracement zone at $2.260 to $2.239. If the main trend changes to up then look for the rally to possibly extend into a retracement zone at $2.428 to $2.489.

Given the huge net speculator short positioning, the market may be setting up form an impressive short-covering rally or short squeeze. All the market needs is a weather catalyst to ignite the move.