Colder Forecast Supports Nearby Futures
December natural gas futures settled higher last week, but remained inside the previous week’s range. The price action suggests investor indecision and impending volatility. Prices have stabilized for two weeks after the recent sharp sell-off. That move was fueled by a combination of warmer weather and ample supply ahead of winter. LNG demand remained steady, but that factor was mostly ignored during the late October down move.
This week is expected to start with a slightly bullish tone after prices climbed to a one-week high on Friday. The main catalyst underpinning the market ahead of the new week is the prospect of colder temperatures in key U.S. demand areas. This weather forecast is leading to calls for increased heating demand for gas. According to the Commodity Weather Group, cooler temperatures are now expected across the central and eastern United States through November 20.
NatGasWeather is calling for mild weather until November 10 with “highs of upper 40s to 60s across the northern U.S. and comfortable 60s-80s across the southern U.S.” They are predicting overall light demand over the next seven days. Based on Friday’s update from the Commodity Weather Group, we’re anticipating a similar shift by NatGasWeather. This could help boost prices early in the week.
Longer-term or deferred futures contracts are still being influenced by expectations of a Super El Nino. The weather phenomenon is forecast to bring warmer-than-normal winter temperatures to the upper half of the U.S. This should keep a lid on overall seasonal heating demand.
LNG Demand and Storage Remain Key
The anticipation of steady LNG demand is also providing some support for nearby natural gas. According to BNEF, LNG net flows to U.S. LNG export terminals rose to a record 21.4 bcf/day. This jump could help shrink domestic stockpiles.
Last Thursday’s weekly EIA storage report was interpreted as bearish, but Friday’s price action indicates that traders have absorbed the news. The report for the week ended October 30 showed storage increased by 77 bcf. This was more than the 5-year average of 61 bcf. Natural gas inventories are currently down 2.8% for the year, but 1.4% above their 5-year seasonal average.
Due to the November 11 U.S. Veterans Day holiday, the weekly storage report has been pushed to Friday, November 13. It is expected to show an injection ranging from 45 Bcf to 55 Bcf for the week ended November 6. The 5-year average build for this time period is roughly 60-62 Bcf.
Natural Gas Price Forecast
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See all Natural Gas forecastsWeekly December Natural Gas Futures Technical Analysis
Weekly December natural gas futures are in a downtrend. A trade through $3.652 will change the main trend to up according to the swing chart. Taking out $2.830 will signal a resumption of the downtrend.
The short-term range is $3.652 to $2.830. This makes its 50% level at $3.241 the first upside target.
The 52-week moving average at $4.083 is still trending lower and driving the overall bearish long-term outlook.
Weekly April Natural Gas Futures Technical Analysis
Weekly April natural gas futures continue to struggle around the previous long-term bottom at $2.366. Last week, it hit a low at $2.330 but recovered enough late in the week to post a slightly higher $0.009 gain at $2.359. This is technically a minor closing price reversal bottom, but poorly constructed. Nonetheless, we have to respect the possibility of confirmation of the chart pattern on a trade through $2.413.
The main trend is down according to the weekly swing chart. Its last two-week top is $3.052. A trade through this level will change the main trend to up. A move through $2.330 will negate the minor reversal and signal a resumption of the downtrend.
The minor trend is also down. A trade through $2.712 will change the minor trend to up and may shift momentum to the upside. The minor range is $2.712 to $2.330. Its 50% level is the counter-trend upside target at $2.521.
If a rally doesn’t materialize and $2.330 fails to hold, two long-term bottoms at $2.237 and $2.173 will become the focus.
What to Watch
December Natural Gas Futures
My bias is long-term bearish, but the current setup suggests a support base may be building for a short-term counter-trend rally, with $3.241 a reasonable retracement target. The short-term fundamentals may also be providing some protection against a new low, with increased demand possible until November 20. Further confirmation of cooler temperatures from the Commodity Weather Group or NatGasWeather could be a catalyst that drives prices through the two-week high at $3.092 and toward the first retracement objective.
April Natural Gas Futures
I have a bearish long-term bias, but can see the potential for a limited short-term counter-trend rally. Short-covering through $2.413 could be the trigger that sends the market into the 50% level at $2.521.
With a developing Super El Nino driving the long-term bearish outlook, new short-sellers could return on any rally into resistance. Until the main trend changes on the weekly swing chart, the long-term bias remains bearish and rallies into resistance are likely to attract sellers.
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