Natural Gas Price Fundamental Daily Forecast – Bearish as Long as Forecast is Accurate

Natural gas futures are trading lower on Tuesday, after failing to rally through yesterday’s high at $2.258, in a feeble attempt to begin filling the gap left by Monday’s weaker opening.

The market opened the week with a gap lower after weekend forecasts eliminated December cold from the forecast. This put pressure on the market because it increased the need for a dramatic cold spell in order to bring supply closer to balance.

At 10:25 GMT, January natural gas futures are trading $2.229, down $0.003 or -0.10%.

Natural Gas Intelligence (NGI) reported that spot market prices also plunged due to mild temperatures and heavy discounts in New England. Prices fell throughout the day although analyst projections pointed to higher demand later this week. NGI’s Spot Gas National Average dropped 12.0 cents to $2.155.

“Big Move Warmer” in Weather Models

Weekend runs from both the American and European models advertised “a big move warmer,” shedding around 15-20 gas-weighted degree days from the 15-day outlook, according to Bespoke Weather Services.

“The reason lies mostly in the pattern across the Pacific which is hostile toward getting cold air to drop into the U.S.,” Bespoke said. “We had favored some warmer risks because of this expectation, as the orientation of tropical forcing has not looked favorable for cold, but the magnitude of the weekend change was more than expected.

“In addition to the warmer changes over the next 15 days, the look of the pattern implies warm into the 16-20 day as well. We do still suspect cold risks can return down the road, but it appears this will have to wait until at least the very end of December, if not into the turn of the new year.”

Daily Forecast

We could see some short-covering on Tuesday as weaker shorts are likely to get spooked out of the market on any hint of the return of cold temperatures. Nonetheless, we are in a bear market so any reasonable rally due to price action, technically oversold conditions and mild hints of cold are likely to be met with another round of fierce selling pressure.

EBW analysts said, “With December now on a much warmer path, however, and cash prices likely to weaken later this month due to the holidays, significant losses are likely between now and Christmas.”

The price action is as good as the accuracy of the weather forecasts. As long as the forecasters agree in calling for warmer temperatures, prices will fall. If the US and European models become mixed like last week, we could see some meaningful short-covering.