Natural Gas Fundamental Forecast – January 23, 2017

Natural gas futures closed sharply lower on Friday as long investors continued to shed positions due to the absence of cold weather. The current downside momentum has put the market in a position to challenge the January 9 bottom at $3.110.

March Natural Gas futures closed at $3.211, down $0.149 or -4.43%.

Forecast

Technical and fundamental factors continued to play a role in the price action. Technically, last week’s high at $3.489 fell inside the short-term retracement zone at $3.469 to $3.554. This area is resistance this week.

For nearly a month, March Natural Gas futures have traded inside a wide range bounded by $2.764 to $3.828. Throughout the new year, it has spent a lot of time straddling its retracement zone at $3.296 to $3.170. This zone is controlling the near-term direction of the market. Trader reaction to this zone will determine whether sentiment turns bullish or bearish.

As of Friday’s close, the market is trading below the 50% level at $3.296. This is giving the market a downside bias. Taking out the Fibonacci level at $3.170 will indicate the selling is getting stronger. If it fails then look for the break to extend into the main bottom at $3.110.

The main trend is down. Taking out $3.110 will signal a resumption of the downtrend. A move over $3.489 will change the trend to up.

Last week, the U.S. Energy Information Administration reported a larger-than-expected drawdown the week-ending January 13. The market spiked higher on speculative buying, but professionals knew the data was stale. Due to the warmer weather the week-ending January 20, we expect the drawdown to be much smaller this week.

Unseasonably mild temperatures are expected over the near term, so demand for natural gas should be low. If a bottom starts to form this week, it will likely be from the lack of selling pressure. I don’t expect real buyers to step in to stop the price slide until the weather forecast calls for a lingering Arctic blast. Cold weather is anticipated for February, but it may only be enough to stop the selling.

Based on Friday’s close at $3.211, the direction of the market today is likely to be determined by trader reaction to the potential support level at $3.170.