NatGas Speculators Betting on Colder Midday Forecasts

Natural gas futures are inching higher shortly after the regular session opening on Monday as sellers adjust positions following an uneventful weekend. The market is also being underpinned by signs of tight balances following last weeks, but at the same time, gains are being capped by forecasts calling for a February warm-up.

Meanwhile some aggressive specs are hoping the midday forecast shows colder temperatures over the 8 to 15 day period.

At 15:30 GMT, March natural gas futures are trading $3.811, up $0.029 or +0.77%.

Bespoke Weather Outlook

Trends from the major weather models were mixed over the weekend, and the end result was no major change to the outlook for natural gas demand compared to Friday’s expectations, according to Bespoke Weather Services.

“We still favor a gradual shift more into a classic La Nina state into February, but caution is advised, as there is plenty of cold that will be available up in Canada, so small changes in the upper level pattern can mean larger changes in the overall demand pattern,” Bespoke said.

Bespoke also described the price action early Monday as ‘rather odd” given the potential for colder trends to develop next month.

“The behavior of the February contract exhibits higher confidence that we will not see cold, especially when looking at where production sits, which has not recovered still,” the firm said.

NatGasWeather Forecast

According to NatGasWeather for January 24-30, “National demand will be very strong this week as a series of frigid blasts sweep across the Midwest and East with areas of sow and frosty lows of -20s to 20s, aided by lows of teens to 30s into Texas and the South at times.

The western U.S. will be mild to nice with highs of 40s to 70s, lows of 20s to 40s besides the colder Mountain West where highs will be in 10s to 40s with lows of -0s to 30s.

Overall, national demand will be high-very high the next 7 days.

Short-Term Outlook

The early price action suggests the strong seven day demand has already been priced into the market.

The inability to produce a rally on this news is being blamed on an inconsistent 8-15 day pattern. The U.S. GFS forecast is trending colder than the European EC model.

Traders are waiting for the midday forecasts for clarity. The GFS and EC could agree on warmer temps. Or they could agree on colder temps. But then again they may remain comparatively different.

Technically, the key level to watch is $3.964. Trader reaction to this level is likely to determine the near-term direction of the market.