Natural Gas Forecast: Cooler Weather Supports December as El Nino Pressures April Futures

Cooler Weather Bets Clash With Comfortable Storage

Nearby natural gas futures are putting in a mixed performance on Friday as traders evaluate a possible shift toward cooler temperatures amid a bearish supply situation.

According to the latest reports from The Commodity Weather Group on Thursday, new forecasts are showing possible cooler temperatures in the Midwest for November 10-19 and high demand areas on the East Coast from November 15-18. NatGasWeather, however, is calling for light demand over the next seven days with temperatures a little cooler in the north and comfortable across the south.

Deferred futures contracts are still being impacted by expectations of a Super El Nino, which is predicted to bring above-normal temperatures to the northern portion of the United States, leading to forecasts for lower demand.

December Finds Buyers as April Tests New Lows

Traders are showing a mixed reaction to Thursday’s bearish Energy Information Administration (EIA) weekly storage report. The nearby December natural gas futures contract is showing signs of bottoming, but the deferred April futures contract is testing multi-month lows.

The EIA report came in at 77 Bcf for the week ended October 30, which was above the 5-year average of 61 Bcf. Additionally, the numbers show a 2.8% decrease in inventories year over year, but a 1.4% increase above their 5-year seasonal average. Combined, the figures suggest storage is adequate heading into winter.

Daily December Natural Gas Futures Technical Analysis

December natural gas futures are edging higher on Friday as traders continue to attempt to build a solid support base heading into winter.

The main trend is down according to the daily swing chart. A trade through $3.092 will change the main trend to up. A move through $2.830 will signal a resumption of the downtrend.

The minor trend is up. It turned up on Wednesday when buyers took out the minor swing top at $2.978. A trade through $2.839 will change the minor trend to down. Having the main trend down and the minor trend up can give a mixed signal to traders, but it often leads to increased momentum.

The short-term range is $3.092 to $2.830. The market is currently trading on the strong side of its 50% level at $2.961. A sustained move over this pivot could create the upside momentum to challenge $3.092 so it’s important that buyers establish support on its strong side.

The intermediate range is $3.652 to $2.830. Its retracement zone is $3.241 to $3.338. If the main trend changes to up then watch for a potential acceleration to the upside with this retracement zone as the next upside target area.

December natural gas is still trading on the weak side of the 50-day moving average at $3.339, but this level is forming a potential resistance cluster with the upper or 61.8% level of the intermediate retracement zone.

April Natural Gas Futures Technical Analysis

April natural gas futures hit a new multi-month low early Friday, reaffirming the downtrend. After straddling a former bottom at $2.366 for over a week, today’s price action suggests the market is positioning to pull away from this level to the downside.

A trade through $2.395 will change the main trend to up, but until the market forms a minor or main bottom, we can’t identify retracement-zone targets. Given the minor range of $2.395 to today’s low at $2.335, the rolling 50% level is $2.365. The short-term range is $2.472 to $2.335. Its rolling 50% target is $2.4035. A trade through $2.335 will reaffirm the downtrend and the 50% levels will move down.

What to Watch

December Natural Gas Futures

My bias is counter-trend. The trend is being controlled by the 50-day moving average at $3.339 and the main swing chart, but the change in trend to up on the minor swing chart and crossing to the strong side of the pivot at $2.961 indicate the presence of buyers. If this can create upside momentum by attracting new buyers, the market may take out $3.092, changing the main trend to up and setting up a possible acceleration into the major retracement zone at $3.241 to $3.338 and the 50-day moving average at $3.338.

My outlook will weaken on a close under $2.961, but it doesn’t mean $2.839 and $2.830 will be taken out. The market could just pull back into at least $2.935, where new buyers could emerge and help create a third higher bottom.

April Natural Gas Futures

My bias for April natural gas will be to the downside until buyers can take out a swing top. Currently, the closest main top is $2.395. Supporting my outlook is the 50-day moving average at $2.623.

After breaking through the previous long-term bottom at $2.366, selling pressure could build. This puts the next potential downside target at $2.237.

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