Natural Gas Price Fundamental Daily Forecast – Big Decision Time; Chase Over $2.695 or Play for Break into $2.546

Natural gas futures are trading slightly higher on Wednesday despite reports calling for another “solid shift to the colder side in the latest weather models,” according to Natural Gas Intelligence. The news has fueled a two-day surge in the market that has brought prices back to their highest levels since September 26.

At 11:09 GMT, December natural gas futures are trading $2.644, up $0.005 or +0.19%.

Spot Prices Rise, Weather Supportive on Tuesday

Spot gas prices also continued to rise Tuesday, with the Rockies and California continuing to post substantial increases that put prices back above $3 at several key pricing hubs.

Bespoke Weather Services said both the American and European data early Tuesday were 15-20 gas-weighted degree days (GWDD) colder than where they stood the previous 24 hours. They also said the American ensemble data remained much colder versus the European models by about 16-17 GWDD, but so far, both models keep moving in the same colder direction.

NatGasWeather said the midday data was relatively unchanged, with the Global Forecast System (GFS) only giving back one to two heating degree days (HDD). The afternoon European model then trended a little colder to add three to four HDDs versus Monday night’s run and eight HDDs versus its run in the previous 24 hours.

Early Look at EIA Weekly Storage

NatGasWeather said the frigid pattern is expected to result in a couple smaller-than-normal storage builds, or potentially even the first withdrawal of the season for the storage report three or four out, preventing surpluses from increasing further. Through the summer, production dominated the market and helped flip a 700 Bcf-plus deficit to year-ago levels to a more than 500 Bcf surplus.

Daily Forecast

The break from the high on Tuesday and today’s early price action could be an early indication that something is changing in the forecasts. Furthermore, the December natural gas futures contract stopped at a key retracement zone which demonstrated that short-sellers were not fazed by the change in the weather forecasts. In other words, so far they are treating the rally as a normal technical correction in a bear market.

That being said, the charts indicate the 50% to 61.8% retracement zone at $2.636 to $2.695 is controlling the direction of the market.

A lingering cold forecast could trigger a breakout over the upper or 61.8% level at $2.695. If this move is able to create enough upside momentum then look for the rally to possibly extend to the September 17 top at $2.884.

If short-sellers can sustain a break under $2.636 then the market could pull back into a short-term retracement zone at $2.546 to $2.509.

Shorts are usually taken out on the first rally from a bottom. The real buyers come in on a pullback into the retracement zone of the rally. A break back to $2.546 to $2.509 may be necessary to attract new buyers.

Essentially the choices for traders are, chase the market higher on a breakout over $2.695, or wait for a correction to $2.546 to $2.509.