Natural Gas Price Fundamental Daily Forecast – Bearish, but Spot Market Gains Could Fuel Short-Covering Rally

Natural gas futures are trading slightly better on Friday on light profit-taking and position-squaring. However, this week’s downside momentum suggests the market may have to touch the psychological $2.50 level before any meaningful short-covering rally may begin. There is also the outside chance that higher spot market prices provide support for futures prices ahead of the week-end.

At 13:08 GMT, March natural gas futures are trading $2.592, up $0.041 or +1.61%.

Despite the early supportive move, the overall bias remains decidedly bearish. The combination of the warming trend and the smaller-than-expected storage withdrawal proved to be a little too much for buyers to handle on Thursday. According to Natural Gas Intelligence, “With storage supply fears firmly erased from the minds of traders, Thursday’s NYMEX action saw the March/April spread flip to negative.”

“The first flip in the so-called widow-maker spread occurred in early-morning trading as the European weather model – which had been the coldest in recent days – trimmed a huge chunk of demand from the forecast. The American Global Forecast System (GFS) and the European model had been at odds regarding the intensity of a pair of weather systems moving into the country beginning this weekend,” Natural Gas Intelligence wrote.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported a 237 Bcf withdrawal from storage inventories for the week-ending February 1. The number was about 10 Bcf higher than the consensus estimate.

Total working gas in storage as of February 1 stood at 1,960 Bcf, 135 Bcf below last year and 415 Bcf below the five-year average, the EIA said.

Short-Term Weather Outlook

According to NatGasWeather for February 8 to February 14, “Cold air over the Midwest will continue to fan out and advance into the southern and eastern U.S. today and Saturday, including with a wintry mix of precipitation along the cold front across the East. Temperatures behind the core of the cold front will drop into the -20s to 20s, but also with teens to 30s into Texas and the South. The West will be unsettled and cool to cold. A mild break will return across the southern and eastern U.S. early next week before another cold shot arrives mid-week with warming then following late week. Overall, national demand will be high Friday-Monday, then moderate for the rest of next week.”

Daily Forecast

We’re getting mixed signals today which could be an indication of an impending two-sided trade. The jump in prices in the spot market could be short-term supportive, but it’s not likely going to be strong enough to offset the bearish flip of the March/April spread. If anything, it indicates to watch for a short-covering rally to set up the next shorting opportunity.