Natural Gas News: Traders Focus on Weather Forecasts for Price Guidance

Natural Gas Futures Trading Outlook

As natural gas futures resume trading on Thursday, market participants will be closely monitoring the ongoing heatwave in the United States and a Tropical Storm in the Gulf of Mexico.

In today’s limited trade, at 12:29 GMT, natural gas futures are trading $2.412, down $0.086 or -3.44%. This follows a 4.34% increase on Tuesday.

Heatwave Impact on Prices

Despite yesterday’s rally, which many attributed to the heatwave, our analysis suggests it was primarily a short-covering rally. The current excessive heat has been factored into the market for the past two weeks, aligning with the typical forecasting window the market uses. As a result, traders should shift their focus to the upcoming 10-15 day weather forecasts. These predictions will indicate whether the heatwave will extend into early July, if another heatwave might form, or if temperatures will return to seasonal norms.

Professional vs. Amateur Trading Strategies

Professional traders understand that hot temperatures are standard in summer. They remain cautious, knowing that a prolonged heat dome is needed to significantly drive prices higher. On the other hand, amateur traders might react strongly to any mention of high temperatures, viewing it as a bullish signal. Experienced traders recognize that unless the heat persists, its impact on prices is limited.

Nearby Futures and the Cash Market

Novice traders often focus on nearby futures, which closely track the cash market. If unexpected heat occurs, users may need to purchase gas from the cash market, pushing nearby prices up. However, savvy users who anticipate heat and buy in advance prevent such price spikes. This factor caps front-month futures prices unless unforeseen weather changes force last-minute buying.

Spread Trading and Storage Concerns

Professional traders frequently trade the spreads, selling nearby contracts while buying deferred ones. They understand that while excessive heat can reduce storage levels, the real risk comes from winter shortages. Hence, they prepare for potential supply constraints by positioning themselves strategically in the futures market.

Impact of Tropical Storms and Hurricanes

Tropical storms and hurricanes generally have a bearish effect on natural gas prices. These weather events often lead to demand destruction through cooling rains and can disrupt LNG plant operations, further reducing demand.

Market Forecast

Given the current conditions, the market is likely to see a short-term bearish outlook. Professionals are expected to continue selling into rallies as headlines drive amateur buying. The focus remains on long-term strategies, with professionals paying close attention to 10-15 day forecasts to inform their trading decisions.

Technical Analysis

When the natural gas market resumes trading on Thursday, speculators will  be eyeing the response to the 200-day moving average at $2.931. Trader reaction to this indicator will determine the near-term direction.

Bullish speculators are betting on a weather-induced breakout over a pair of tops at $3.159. Bearish traders are looking for a pullback into the 50-day moving average at $2.596.