Natural Gas Fundamental Analysis – Forecast for the Week of January 23, 2017

Natural gas futures closed lower last week as long investors continued to shed positions in anticipation of average to above average temperatures in several key demand areas in the U.S. The absence of cold temperatures at the end of January and into early February also kept bullish buyers are the sidelines for most of the week.

March Natural gas futures finished the week at $3.211, down $0.185 or -5.45%.

According to the U.S. Energy Information Administration (EIA), natural gas stockpiles shrank by 243 billion cubic feet in the week-ending January 13. Traders were looking for a draw of 229 Bcf. The five-year average draw for this week of the year is only 170 Bcf.

Total stocks now stand at 2.917 trillion cubic feet, down 431 Bcf from a year ago and 77 Bcf below the five-year average, the government said.

Supply in January is down 2.4 Bcf from the same period a year ago, according to Platts Analytics. However, total demand is still down compared to last January, but this is largely due to the mild weather. This suggests a very tight supply and demand balance. However, this doesn’t mean much unless the weather turns cold.

Forecast

The March natural gas market closed in a weak position on the charts. The downside momentum into the close is likely to lead to a break into a potential support price at $3.170. This is followed by a main bottom at $3.110. The daily chart opens up to the downside under this price.

On the upside, the first key number to overcome is $3.296. This price is a potential trigger point for an acceleration into $3.469, $3.489 and $3.554.

The trend is down on the weekly chart. Buyers would have to take out $3.828 to turn the main trend to up.

The weak close suggests this market is headed lower this week unless there is a turnaround in the weather. According to natgasweather.com, natural gas demand will be low to very low the next 7 days. Some traders are saying there is a massive arctic air mass building in northern Canada. If this mass begins to work into the U.S. then we could see a short-covering rally. If it lingers after reaching the states then we could see another spike to the upside.

This weather system is likely to determine the direction of the natural gas market over the next two weeks.