Natural Gas News: Futures Rebound Today as Weather Forecast Shifts Colder

Natural Gas Rebounds as $3.00 Support Holds

Natural gas futures are edging higher for a second session on Tuesday, mostly on profit-taking and short-covering as selling pressure dried up when the market approached the $3.00 barrier. Higher oil prices due to the escalating situation in Iran are also responsible for some of the strength. However, the introduction of cold into the forecast on Monday may be making some bears a little nervous as the weather services continue to flip-flop the outlook for the mid-to-late January time periods.

At 13:48 GMT, February Natural Gas is trading $3.428, up $0.019 or +0.56%.

Weather Models Shift Colder—Heating Demand Could Surge

On Monday, forecaster Atmospheric G2 said the data shifted colder across the eastern half of the U.S. for January 17-21, potentially boosting heating demand. The service also added that the outlook trended colder in the northern half of the country for January 22-26.

Another forecaster, NatGasWeather.com, added that “Both the GFS and EC weather models trended more than 20 HDDs colder over the weekend, including a frosty shot into the U.S. late this week. There were also colder trends for the 11-15 day period as well.”

Don’t Be Fooled by “Trended Colder” Language

Keep in mind the term “trended colder.” It’s winter—it gets cold. The key phrases that could dictate stronger upside responses are “lingering cold,” “cold shot,” or “polar dome.” Also remember that it was just last Friday that prices fell to a 2.5-month nearest futures low after forecasts of warmer temperatures across the U.S. reduced natural gas heating demand, allowing storage levels to rebuild.

Volatile Weather Patterns Could Drive Price Swings

We appear to be going through a volatile weather period, which means prices could also reflect some of that volatility with sudden intraday changes in direction. We’re looking at very light demand until Wednesday, then a strong pickup in demand for Thursday through Sunday.

Technical Outlook: Downtrend Intact But Bulls Eye Key Levels

Technically, the main trend is down according to the daily swing chart. February natural gas could pick up some upside momentum if it can hit some stops above the last swing top at $3.634 and the 50% level at $3.654.

Even better for the bulls, if buyers can establish support on the strong side of the 50% level, then the daily chart shows the market has room to run into the 50-day moving average at $4.055. The bears may be quite comfortable allowing prices to run into resistance areas because the market is still in “sell the rally” mode.

Trading Strategy: Watch for Short-Covering Rallies

The size of the next move is often dictated by the size of the support base. We’re just two days removed from a multi-month low for the nearby contract, so it does not look like there is a big enough support base built to sustain a long-term rally. Overall, watch for weather-related short-covering and be prepared to sell rallies into resistance.

More Information in our Economic Calendar.