Natural Gas News: Counter-Trend Rally Amid Cooler Weather Forecasts

Counter-Trend Rally

As natural gas prices near a multi-year low, Monday’s market saw a notable counter-trend rally. This upswing is primarily attributed to the recent shift in weather forecasts, predicting cooler conditions that are likely to increase short-term demand.

NatGasWeather highlights that while much of the U.S. experienced lighter demand for the past seven weeks, the emerging cooler weather patterns across northern and central regions are steering the market towards a rally. Despite the southern U.S. maintaining milder temperatures and the early April forecasts not appearing sufficiently cold, Monday’s market responded positively to these short-term weather changes.

At 12:25 GMT, natural gas futures are trading $1.808, up $0.064 or +3.67%. This is up from last week’s low at $1.710.

Last Week’s Natural Gas Market Review

Reflecting on last week, U.S. natural gas futures were marked by a significant drop of over 8%, continuing a downward trend. The decline was influenced by expectations of milder weather, which typically leads to reduced heating requirements.

Concurrently, an increase in U.S. oil and gas rigs, as reported by Baker Hughes, suggests potential growth in natural gas production. Despite a more significant withdrawal from natural gas storage than anticipated, the market reaction remained limited.

Prices had earlier hit a low point in late February, driven by high output, warmer weather, and falling heating demand. This year, however, the U.S. EIA forecasts a drop in natural gas production, while major producers are reducing output, possibly affecting future supplies.

Market Forecast: Short-Term Bullish, Long-Term Bearish Outlook

Monday’s market reaction indicates a short-term bullish trend, buoyed by the sudden shift in weather forecasts leading to an uptick in natural gas prices.

However, the broader outlook remains bearish. Factors such as the recent downtrend, potential increases in production, and fluctuating demand contribute to a cautious long-term perspective.

While the immediate forecast shows signs of a rally, underlying market conditions and future predictions suggest a need for vigilance in the coming months.

Technical Analysis

Natural gas futures are edging higher while straddling a pivot level at $1.696 that could determine the near-term direction of the market.

A sustained rally over $1.696 will indicate the presence of buyers, however, it won’t necessarily be new longs coming in to support prices, but rather short-sellers bailing out. But it’s going to take some seriously bullish news to drive prices into the nearest resistance or the 50-day moving average at $2.021. Sellers are likely to be waiting for this move since the major fundamentals are bearish.

On the downside, the February bottom at $1.607 is still a potential target.