Natural Gas Price Fundamental Daily Forecast – Was the Sell-off ‘Too Bearish” for This Time of Year?

Natural gas futures are edging higher early Tuesday following yesterday’s gap lower opening on both the daily and weekly charts. The early move can best be described as a low-volume, weak attempt at a dead cat bounce.

Prices tumbled from the get-go on Monday as weather forecasts “failed miserably” over the weekend, shedding a hefty amount of demand from the 15-day outlook, Natural Gas Intelligence (NGI) reported.

At 09:15 GMT, February natural gas futures are trading $2.345, up $0.019 or +0.82%.

Spot gas prices also tumbled, with widespread losses of 30.0 cents or more seen across the United States, according to NGI. NGI’s Spot Gas National Average fell 24.5 cents to $2.535.

What Triggered the Selling?

Over the long holiday weekend, the European weather models erased more than 25 heating degree days from the long-range outlook, and the American model also backed off the projected demand in the early part of January.

The Global Forecast System (GFS) lost 12 heating degree days (HDD), while the European model lost a heftier 25-plus HDDs.

NatGasWeather’s Explanation

“What makes the coming pattern strongly bearish is the eight-to-15 day period favors mild conditions over most of the U.S. with continued only minor bouts of subfreezing temperatures into the northern U.S.,” NatGasWeather said.

NGW expects the period is now “too bearish” and will likely add demand in time, “although it would need to be a hefty amount” in order to flip bearish weather sentiment to bullish, which isn’t expected. “We continue to look to January 10-13 as the next best opportunity for more impressive/widespread cold.”

Bespoke Weather Services’ Outlook

Bespoke Weather Services said until the warmer momentum halts, it is difficult to say where a price bottom may be. There is still a healthy block expected to form by the middle third of January, aided by a strong warming in the polar stratosphere, according to the forecaster. However, the Pacific flow needs to slow down for this to send temperatures materially colder.

“That is something that may happen in the back half of the month, enough to at least bring back some variability, but confidence is lower after seeing such a huge model bust over the last several days,” Bespoke said.

Short-Term Outlook

The sell-off was impressive, but I don’t think this is the kind of move that has much more downside potential unless the forecasts for January 15 to February 1 show an unusual warming pattern.

Bespoke doesn’t see much risk/reward in being bearish, though it advised caution until the market clears the January contract’s expiration on Tuesday, as well as the holiday period, so that it can see how balances shape up once clear of any holiday impact.

Even the guys at NatGasWeather saw the move as “too bearish”.

The actual risk is in playing the long side ahead of the long holiday weekend.