Natural Gas Price Fundamental Weekly Forecast – $3.980 is Trigger Point for Acceleration but Bulls Need Cold Beyond Jan. 7

Natural gas futures closed slightly lower last week. The price action on the daily chart throughout the week suggests bottoming action as buyers continued to come in on the dips, only to be rejected by stubborn sellers parked at technical resistance areas.

Although a prolonged span of mild temperatures has pressured the market throughout the month along with rises production, this week’s price action suggests investors may be responding to new forecasts calling for a potential cold snap around January 1.

For the week, February natural gas settled at $3.750, down $0.003 or -0.08%.

U.S. Energy Information Administration Report

The EIA on Thursday reported a 141 Bcf withdrawal from U.S. natural gas stocks for the week-ending December 14. That compares to a year-ago withdrawal of 166 Bcf and a five-year average pull of 144 Bcf.

Estimates ahead of the EIA report pointed to a withdrawal in the low to mid-130 Bcf range.

Furthermore, Bloomberg called for a range of 118 Bcf to 146 Bcf with a median draw of 135 Bcf. Reuters looked for a range of 94 Bcf to 153 Bcf with a median of 133 Bcf. Additionally, Kyle Cooper of IAF Advisors and Bespoke Weather Services each estimated a 133 Bcf draw, while EBW predicted a 145 Bcf draw.

Short-Term Weather Forecast

According to NatGasWeather for December 21-27, “A strong weather system will bring heavy rain over the East Coast the next few days with snow into the coldest air. Mild conditions will dominate most of the rest of the country with highs of 40s and 50s north and 60s to locally 70s elsewhere. There will be a brief cold shot across the Midwest and East next week, focused around Christmas Eve for locally stronger demand otherwise mild. The West will see weather systems with valley rains & mountain snows. Overall, national demand will be lighter than normal due to not enough cold air. Overall, national demand will be low.”

Forecast

Natural gas prices were volatile last week. Not the one-sided volatility we’ve seen in November and most of December, but the choppy, two-sided variety. This price action was fueled by forecasts that point toward a potential shift to colder temperatures during the first week of the new year.

NatGasWeather said on Thursday, the European weather model was indicating a potential colder trend for the first few days of the new year.

“Prices eased off modestly after the latest overnight European model backed off the amount of cold December 28-30, although it still shows decent cool shots arriving December 31-January 2,” the forecaster said. “No major changes overall with a mostly mild U.S. pattern through December 29, then with stronger cooling across the northern and eastern U.S. December 30-January 3 and where it will play out either neutral or slightly bullish depending on just how much cold air arrives across the East.”

“…What will be most important over the weekend break is just how cold weather systems December 30-January 2 will be, and if reinforcing cold continues January 4-7, which the weather data sees as becoming less likely.”

Due to thin holiday trading conditions and the developing forecast for a short-term cold snap after the first of the new year, we could see a short-covering pop to the upside this week. The move could even be exaggerated if sellers decide to take the week off.

Strong buyers will only come in to play the long-side if the calls for colder temperatures increase beyond January 3. It seems traders are pricing in the cold snap from December 30 to January 2. If the cold is forecast beyond January 7 then prices could run to the upside.

The key resistance area that buyers have to overcome is $3.775 to $3.980. Overtaking $3.775 will be the first sign of strength. If this creates enough upside momentum then look for February natural gas to surge into $3.980. We could see an acceleration to the upside if buyers take out this level with conviction.