Natural Gas Price Fundamental Weekly Forecast – Not Much in Forecasts to Suggest Return of Cold Temps

Forecasts calling for mild winter temperatures and discounted spot market prices were primarily responsible for sharply lower natural gas prices and a trip under the psychological $2.00 level last week. However, ahead of the weekend, data from the European model suggested “better demand” could be in the cards in early February. Nonetheless, the overall outlook is still pretty gloomy for the speculative bulls.

Last week, March natural gas futures settled at $1.870, down $0.034 or -1.79%.

Short-Term Weather Outlook

The week-ended with NatGasWeather saying, the European data “again only favored a glancing blow of colder air across the Midwest and Northeast February 5-7. Demand is still better those days than the rather bearish pattern before then,” but it would take a “much colder” shift to be considered bullish.

As for what prices do coming out of the weekend break, “it’s possible the weather data is too mild and adds demand, but to end bearish weather headwinds, the February 5-10 period will need to look more intimidating” that it did in Friday’s model runs, NatGasWeather said.

Nearing Peak Heating Demand

Natural Gas Intelligence wrote, earlier in the winter, the weather had the potential to become a “bullish wildcard” for an oversupplied market, but with the end of the peak heating demand season fast approaching, the weather so far has proved “dramatically bearish,” according to RBN Energy LLC analyst Sheetal Nasta.

“Daily national average temperatures in January to date have averaged 4-plus degrees (Fahrenheit) above the 10-year average and also nearly 3 degrees higher than last year,” Nasta wrote in a recent blog post. “As such, U.S. gas consumption has been exceptionally weak in January so far.”

“Total U.S. consumption, in turn, has averaged about 100 Bcf/d in January to date, about 3.5 Bcf/d lower than in the same period last year and 2.3 Bcf/d lower than the five-year average,” Nasta said.

Net Shorts Rise

According to the CFTC Commitments of Traders report for the week ended January 21, net shorts for natural gas futures rose 10, 223 contracts to 249,405 contracts for the week.

Weekly Forecast

The weather picture through early February “leaves little to no room for cold weather to ease oversupply conditions,” Nasta said. “Absolute temperatures typically begin a seasonal rise starting around mid-February, and as seasonal temperatures rise, their influence on heating demand diminishes, meaning it would take more extreme cold-weather anomalies by late February and March in order to move the needle on demand and storage.

“Plus, once temperatures rise enough for freeze-offs to abate, production volumes are likely to bounce back to pre-winter levels and even possibly see more upside beyond that.”

With the weather not being very cooperative for the bulls, these speculative traders should keep watching for signs of the start of a “short squeeze”, given the huge net short position. Don’t guess at it, however, since we saw last week that bearish traders are not afraid to short at the current extremely low prices. Just keep an eye out for bottoming action.