Natural Gas Fundamental Forecast – January 20, 2017

After early session weakness, natural gas futures rebounded on Thursday to close higher for the session. The catalyst behind the turnaround was a larger-than-expected draw from storage last week.

March Natural Gas futures finished the session at $3.360, up $0.052 or +1.57%.

According to the U.S. Energy Information Administration (EIA), natural gas stockpiles shrank by 243 billion cubic feet in the week-ending June 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.

Forecast

Technical factors are playing an equally important part in this week’s price action. Earlier in the week, the rally stopped inside the key resistance zone at $3.469 to $3.554. Yesterday, the March contract tested the support zone at $3.296 to $3.170.

To be even more specific, it was the 50% levels of each range at $3.469 and $3.296 respectively that formed resistance and support. Holding inside this range over the near-term will indicate investor indecision and impending volatility. The longer the market stays inside this range, the greater the volatility.

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.

Natural gas prices could move higher if cold weather hits key demand areas. Not only will this lead to strong heating and power plant demand, but along with the recent surge in export demand, if it ever does get cold, we could be looking at record withdrawals.

According to natgasweather.com, we’re still looking at low to very low natural gas demand over the next 7 days. However, the price action suggests traders are still trying to build a support base in anticipation of colder weather into late January or early February. Buyers are going to continue to underpin the market as long as there is hope for cold weather. However, the bottom of the market could fall out if they push the return of cold weather further into February.