Natural Gas Fundamental Forecast – December 9, 2016

Natural gas futures posted a volatile two-sided trade on Thursday as investors reacted to the weather and the new government data. January natural gas futures closed at $3.695, up 0.092 or +2.55%.

Prices rallied to their highest level since December 2014 earlier in the week, but there was very little follow-through to the upside. The catalyst behind the rally has been the return of cold temperatures across the country. The rally has stalled, however, because there is some disagreement about whether the cold weather will hold beyond the next few weeks.

According to the U.S. Energy Information Administration, natural gas storage levels fell by 42 billion cubic feet during the week-ended December 2. This was in line with expectations.

The entire report was not that rosy, it was somewhat bearish relative to the five year average for that week. Natural gas stockpiles remain 1.3% above levels from last year and 6.9% above the five-year average, according to the EIA.

Forecast

The main range is $4.686 to $2.500. Its retracement zone at $3.592 to $3.850 is the primary upside target. The market is currently testing this zone. The longer-term direction of the market will be determined by trader reaction to the upper level of the zone at $3.850 and the lower level of the zone at $3.592.

The catalyst behind the next major move is going to be the weather. I think that fresh speculative buying is going to be necessary to drive this market through the upside target at $3.850. If this generates enough upside momentum then look for an eventual drive into the psychological $4.000 level.

The market will turn bearish on an extended move under $3.592. This move will likely be triggered by the return of above average or warm temperatures.

Basically, we’re going to be bullish as long as January Natural Gas prices hold above $3.592. We’re going to look for the market to strengthen and possibly accelerate to the upside on a sustained move over $3.850.

The latest forecast from natgasweather.com calls for natural gas demand to be strong through Saturday, easing for a few days, and then back to strong.