Natural Gas Price Fundamental Daily Forecast – Bearish Weather Outlook; Trader Reaction to $2.260 – $2.239 Will Set the Tone

Natural gas futures are headed south for a second session this week as increasingly warmer weather forecasts continue to weigh on demand prospects. Spot prices remain exceptionally strong, which may be helping to limit losses. Position-squaring ahead of Thursday’s weekly government storage report could also be putting pressure on prices.

At 12:40 GMT, February natural gas is trading $2.272, down $0.031 or -1.35%.

Short-Term Weather Outlook

According to NatGasWeather for December 17 to December 23, “A strong cold shot that tracked across the Midwest and Central US Monday will lead to strong demand the next few days with lows of -10s to 20s. The cold front with rain and snow will reach the East today into Wednesday with lows of teens to 20s. Reinforcing cool air will continue across the Northeast late in the week with highs of 20s to 40s, while the rest of the country is expected to warm above normal with highs of 40s to 70s as high pressure rapidly strengthens. Overall, demand increasing to high Tuesday through Thursday then back to moderate or low this weekend into next week.

Mid-Term Weather Forecasts

Natural Gas Intelligence (NGI) reported weather models flipped milder at the end of last week and have continued to warm the outlook for the rest of December. As of early Tuesday, the projected total gas-weighted degree day (GWDD) count for this month sat only 16 above the very warm December the market saw last year (815 in 2019 versus 799 in 2018), according to Bespoke Weather Services.

Tuesday’s warmer change was from a slower weakening of the positive Eastern Pacific Oscillation warm signal, which keeps warmth in the Midwest and East more pronounced into the final days of the month, Bespoke said. There are still reasons to believe that a colder shift into January could materialize, as tropical forcing signals cycle back around to a state that is more favorable for cold intrusions, but it is not clear whether it would occur in the first week of the new year.

“Given that models typically are too fast with changes, we could make the case that any true change would be delayed until after the first week of January,” Bespoke chief meteorologist Brian Lovern said.

Daily Forecast

NatGasWeather says the GFS is advertising “an exceptionally warm and bearish pattern for much of the country beginning Friday (Dec. 20) through Dec. 28. The firm’s view remains that weather is far too bearish to justify any move to the upside.

“If prices gain, it would be for other reasons,” NatGasWeather said.

The chart pattern for February natural gas shows the short-term direction of the market is likely to be determined by trader reaction to a retracement zone at $2.260 to $2.239.

A sustained move over $2.260 will indicate the presence of buyers. If this creates enough upside momentum then look for a drive to $2.351. Taking out this level will change the main trend to up.

A sustained move under $2.239 will signal the selling is getting stronger with $2.169 the most likely downside target.