Natural Gas Fundamental Forecast – January 19, 2017

Natural gas futures retreated on Wednesday in reaction to forecasts for warmer weather over the near-term. Additionally, information about temperatures during the last week in January and early February has been slow in getting out. Late last week, traders drove up natural gas in anticipation of the return of cold temperatures during those time periods. Based on Wednesday’s price action, we have to assume that this forecast has changed to bearish again.

March Natural Gas futures closed at $3.308, down $0.097 or -2.85%.

Forecast

A combination of technical and fundamental factors should drive up the volatility in natural gas futures over the near-term.

Technically, the March contract failed at a retracement zone identified as $3.469 to $3.554. It’s now headed back into a more important retracement zone at $3.296 to $3.170. Trader reaction to this zone will determine the longer-term trend of the market.

Fundamentally, if the weather forecasts continue to change then we could see the start of a volatile two-side trade with buyers coming in at $3.296 to $3.170 and sellers capping rallies at $3.469 to $3.554.

The U.S. Energy Information Administration’s weekly storage report could provide some support on Thursday. It is expected to come in at -235 billion for the week-ending January 13. The previous week’s report showed a draw of 151 billion.

Since this report is based on stale data, the number is going to have to come in at greater than -235 Bcf because this number has already been priced into the charts.

Natgasweather.com is sticking with its forecast for January 18 to January 24. It has been saying for a week that overall natural gas demand will low to very low the next 7 days.

It’s getting late in the month and I haven’t seen any hint of the cold temperatures forecast last week for the last week in January and the first week in February. Look for increased volatility when a forecast for these time periods is finally released.