Natural Gas News: Futures Down 6% Today as Warm Forecast and EIA Inventory Report Loom

Natural Gas Futures Under Pressure as Warmer 8-15 Day Forecast Offsets Near-Term Cold

Natural gas futures are under pressure on Wednesday. Although much of the United States is under a cold weather advisory the next few days, professionals are already looking at the 8-15 day forecast which is calling for much warmer temperatures.

At 15:25 GMT, February natural gas futures are trading $3.737, down $0.235 or -5.92%.

Volatile Week Produces Two Major Swings as Moving Averages Cap Rally

Technically, in just three days this week, we’ve seen two impressive swings, highlighting the volatility at this time of year.

Monday and Tuesday saw the market jump from $3.787 to $4.176. Unfortunately for the bulls, the rally was thwarted by the 50-day moving average at $4.152, just under the intermediate 50% level at $4.245 and the 200-day moving average at $4.348. The 50-day MA is controlling the short-term trend and the 200-day MA is directing the longer-term trend. With the market below both, the trend is down.

Critical Retracement Zone at $3.822 to $3.738 Holds Key to Direction

The short-term range is $3.467 to $4.176. Natural gas is currently testing its retracement zone at $3.822 to $3.738. Trader reaction to this zone could determine the near-term direction.

If buyers step in on a pullback into this area then a potentially bullish secondary higher bottom could form that could create the momentum needed to overcome both moving averages with the appropriate fundamental catalyst.

If the selling pressure is strong enough to take out the lower level of the retracement zone at $3.738 then we could see a collapse into the December low at $3.467.

EIA Report at 17:00 GMT Expected to Show Light 51 Bcf Draw

Fundamentally, the top step futures contract dropped on Wednesday as weather models shed heating demand and traders braced for a second government weekly storage report. It is expected to show a seasonally light drawdown of 51B Bcf although the range is quite wide at 47-76B Bcf.

The report will be released at 17:00 GMT. On Monday, the report showed a draw of 166B Bcf. It missed the weekly forecast, but it was big enough to put supply on the weak side of the five-year average.

Weather Whiplash: Cold December Start Gives Way to Light Demand Forecast After New Year

The weather has been the key factor driving the price action in December. It started out with cold in the forecast but ended in a splat with a forecast calling for a warm Christmas. The current cold wave stopped the market from dropping further, but the latest forecast predicts a few days of light demand after January 1.

It all comes down to trader reaction to $3.822 and $3.738. Look for a recovery into the close on a sustained move over $3.822, and for prices to potentially accelerate to the downside on a break under $3.738.

More Information in our Economic Calendar.