December natural gas futures are up early Tuesday after closing lower the previous session. Weighing on the market is the continued warm weather that is dampening heating demand. Forecasts from NatGasWeather and The Commodity Weather Group are the main catalysts. Their outlooks are calling for persistently above-average temperatures over the next two weeks. The news is thwarting efforts to break out to the upside because traders have been reluctant to buy strength despite what some perceive as an oversold market.
At 12:25 GMT, December natural gas futures are trading $2.899, up $0.043 or +1.51%.
Warm Weather Keeps Buyers Cautious
The weather is the catalyst, and it’s impacting both short-term and long-term market performance. Short-term is the mild-temperature forecast until at least November 16. Long-term, it’s the forecast calling for a “Super El Nino” that is expected to bring warmer-than-usual temperatures in key Northern Hemisphere demand areas this winter. This should contribute to a bearish tone because of lower heating demand.
Production and Storage Add to Pressure
Production is another bearish factor capping gains and pressuring prices. According to BNEF, dry gas production on Monday was 110.00 Bcf/day. BNEF also reported that gas demand was 73.1 Bcf/day, down 2.9% from a year earlier. Estimated LNG net flows were 19.5 Bcf/day, up 5.3% week over week. This level remains near the high end of the annual range, due to steady European demand.
Looking ahead to this week’s Weekly EIA storage report on Thursday, consensus estimates for the week ending October 30 are calling for an injection of 60 Bcf to 75 Bcf. Last week, the EIA reported a slightly larger-than-expected injection of 80 Bcf. This left storage at 3,724 Bcf.
Our focus is going to continue to be on the weather until this narrative changes.
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See all Natural Gas forecastsDecember Natural Gas Futures Technical Analysis
December natural gas futures are higher early Tuesday as traders try to build a support base after two weeks of heavy selling pressure.
The main trend is down according to the daily swing chart. A trade through $3.092 will change the main trend to up. Taking out $2.830 will signal a resumption of the downtrend.
The minor trend is also down. A trade through the minor swing top at $2.978 will change the minor trend to up and could turn momentum to the upside.
The main range is $3.092 to $2.830. Its 50% level at $2.961 is keeping a lid on prices. However, it could also serve as a trigger point for a counter-trend breakout.
The minor range is $2.830 to $2.978. Its 50% level at $2.904 is also capping gains, but we’re going to watch for the start of a minor breakout.
April Natural Gas Futures Technical Analysis
April natural gas futures are edging higher on Tuesday, but it’s a little too early to tell if this is part of the base-building process or the calm before the next sell-off.
A trade through $2.395 will change the minor trend to up. However, it looks as if the market may have to overcome the minor 50% level at $2.408 in order to turn momentum to the upside. Even then, the next potential upside target will be another swing top at $2.472.
If the swing tops are taken out and momentum turns to the upside, then look for a possible surge into the major retracement zone at $2.528 to $2.571.
What to Watch
December Natural Gas Futures
The downtrending main and minor trend indicators are guiding my downside bias today. The prolonged move down on the bearish side of the 50-day moving average at $3.374 is also weighing on the market.
Since mid-October, we’ve seen a lot of selling and shorting. At the start, bearish traders were hitting bids. As we neared longer-term support levels, bearish traders appeared to be less inclined to press the offers and more inclined to sell the small rallies to $3.092 and $2.978. If momentum is going to turn to the upside, then traders are going to have to start taking out offers. This will be my first sign that conditions may be improving for buyers.
Visually, overtaking the 50% levels at $2.904 and $2.961 will send strong signals that traders are taking offers. This will weaken my bearish outlook. However, I’m not going to get outright bullish until the main trend changes on the swing chart.
The trend may turn up, but I’m not going to be looking for a long-term rally. Instead, we’re likely to see new sellers show up on a test of the retracement zone at $3.241 to $3.338 and the 50-day moving average at $3.374.
On the downside, if $2.830 gets taken out with conviction, the main bottom at $2.748 will hit the radar.
April Natural Gas Futures
My bias is to the downside. However, a turn in momentum will weaken my outlook. I’m not anticipating a change in the main trend because the setup isn’t there yet, but a short-term counter-trend rally is possible.
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