Natural Gas Fundamental Forecast – November 22, 2016

Natural gas futures closed higher on Monday as traders reacted to colder weather hitting much of the northern U.S. January Natural Gas futures close at $3.077, up $0.097 or +3.26%.

Monday’s gains coincided with a revised long-term National Weather Service forecast that now calls for below-average temperatures into next week for major gas-consuming regions of the Mid-Atlantic, Great Lakes and Southeast.

The price action has been steady the last two weeks. This is a good sign for those looking for a prolonged rally. A previous rally in early October proved to be too much, too soon. This current rally began with a technical closing price reversal bottom on November 9 at $2.722. This led to the formation of an eight day support base.

On Monday, the market gapped higher and there was enough buying to hold those early gains.

In other news, exports of natural gas have exceeded imports this month, which could be a positive development for future demand.

Forecast

The chart action indicates that upside momentum is building. The rally should continue to strengthen if buyers can overtake and sustain a rally over $3.088. If everything works as planned, the market should rally into at least $3.199 to $3.311 over the near-term.

The good news for bullish traders is that the weather services took out the return of warmer weather at the mid-week and put in colder weather for next week.

Although we should see short-term strength, natural gas prices are still expected to face challenges in the coming months. Without a substantial pick up in winter demand, the upside for natural gas should be limited by technical resistance levels. This outlook could change if we get severe cold for over a month. Right now, the cold weather is hitting a few days at a time, hardly enough to trigger a bona fide bull market.

In other news, according to Platts Analytics’ Bentek Energy, total U.S. demand is expected to climb to 83.2 billion cubic feet Monday and average about 82 Bcf for Thanksgiving week, Dry gas supplies for the Lower 48 states were expected at 71.8 Bcf Monday and remain close to that level for the week ahead.

Look for the rally to continue on Tuesday especially since the forecast for cold weather in key demand areas has been extended into next Monday. The overtaking of key technical areas at $3.088 and $3.199 should also help extend the gains.