Natural Gas News: Futures Drop on Weather Forecast as Inventory Report Flips Back to Surplus

Natural Gas Futures Extend Losses Below Key Retracement Zone

Natural gas futures are lower late in the session on Friday, extending the losses below the short-term retracement zone at $3.738 to $3.822. This area is controlling the near-term direction of the market.

At 19:28 GMT, February Natural Gas Futures are trading $3.613, down 0.073 or -1.98%.

Downtrend Remains in Place as Moving Averages Cap Upside

The main trend is down according to the daily swing chart and momentum is currently trending lower. The main trend will change to up on a sustained move over $4.176, while a move through $3.467 will reaffirm the downtrend.

The trend is also being controlled by the 50-day moving average at $4.139 and the 200-day moving average at $4.340.

Critical $3.738-$3.822 Zone Controls Near-Term Momentum

The short-term retracement area at $3.738 to $3.822 is driving the momentum, so overtaking the upper level will shift momentum higher.

Warm Weather Forecast Pressures Prices as Heating Demand Drops

The first trading day of the new year brought out the sellers as new weather forecasts call for a substantial loss of heating demand for the first half of January. This accounts for the cap on the recent rally and the resumption of the downtrend.

Late-January Cold Snap Could Trigger Volatile Price Action

What could attract the buyers near the $3.467 main bottom is expectations of very cold weather forecast for the back half of January. The price action could turn volatile if the cold materializes with more than half of the winter season still ahead.

Storage Data Shows Flip from Deficit to Surplus Versus Five-Year Average

The week started out promising with a surge to a two-week high. Some of this move was fueled by the weather, some by the news on Monday that supply had flipped to a deficit versus the five-year average.

However, following the release of the latest EIA weekly storage report on Wednesday, which showed a below-average, below-estimate 38 Bcf draw for last week, prices retreated because this put inventories back above the five-year average.

Volatile January Expected as Weather Patterns and Storage Levels Shift

Looking ahead, we have a flip-flopping storage situation and weather reports showing warmth the first half of January and cold the second half of the month. This means we should expect a volatile month with $3.822 and $3.738 controlling the direction.

Natural Gas Outlook: Key Levels at $3.822 and $3.738 Determine Next Move

Look for a bullish tone to develop on a sustained move over $3.822 with a potential shot at the main top and a pair of moving averages.

Watch for a sustained move under $3.738 if the cold weather is shorter or milder than previously forecast. This could lead to a retest of the December low at $3.467 or lower.

More Information in our Economic Calendar.