Natural Gas Price Fundamental Daily Forecast – Bears in Control, but Market Ripe for Short-Covering Rally

Natural gas futures gapped lower on the daily and weekly charts on Monday, but buyers quickly filled the gap. The move doesn’t have much meaning at this time, but it does highlight some of the risk involved in selling this low on the charts, especially in front of the return of cold weather next week-end.

At 04:46 GMT, March natural gas futures are trading $2.727, down $0.007 or -0.26%.

We’re not looking for a change in trend over the near-term, but we won’t be surprised by a short-covering rally. This is because we believe that at current price levels, fund managers will be more inclined to short a rally rather than weakness.

Over the week-end, the record setting Arctic blast weakened across the Midwest, Ohio Valley, and Northeast. Highs quickly rebounded into the 40s and 50s by Sunday, with very comfortable 60s and 70s across the southern U.S. Temperatures even reached 80 degrees in Texas and Florida.

The easing of national demand for natural gas, which is expected to be much lighter than normal levels, is forecast to last through Thursday. After that, colder air is expected to return across much of the northern and eastern U.S., but there are few details about the extremes at this time.

EIA Numbers

The week begins with total stocks at 2.197 trillion cubic feet, down 14 billion cubic feet from a year ago, but 328 billion below the five-year average, according to the U.S. Energy Information Administration for the week-ending January 25.

Short-Term Weather Outlook

According to NatGasWeather for February 4 to February 10, “Much milder conditions will continue across the Ohio Valley and East through Thursday with highs of 40s and 50s. It will be even warmer over the southern U.S. and Mid-Atlantic Coast with highs of 60s to 80s for very light demand. The West will be stormy but only slightly cool. The coldest air will be confined to the Northern Plains where weather systems will track through with highs of -0s to 20s, including rain and snow at times advancing through the rest of the Midwest. Cold air will arrive across the Midwest & Northeast Friday thru Sunday with lows of -0s to 20s.”

“The 8 to 15 day outlook (February 10-17) shows the Midwest & Northeast will see a mix of mild & cold conditions as weather systems. Overall, national demand will be low through Thursday then increasing to high Saturday to Sunday.”

Daily Forecast

The early price action suggests that buyers may be coming in to defend the market against a complete wash-out to the downside. The move isn’t likely designed to form a support base, but probably set up the market for another round of shorting pressure once the cold weather forecast for this week-end passes. Therefore, we’re not going to be surprised by a short-covering rally from current price levels.

Prices could follow the warm-cold-warm weather pattern. We’ve already seen the down in response to the warm, so look for an up then another down pattern over the short-term.