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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures posted another wide trading range on Thursday as investors primarily ignored potentially bearish weather reports, reacting instead to the expiration of the January futures contract.

“The January natural gas contract expired with strength today despite unimpressive afternoon weather model guidance and far weaker cash. Short-term, we remain concerned that weak cash, loose balances and unimpressive early January cold will prevent the February contract from moving much higher. However, by next week, balances should begin to tighten and models should increase long-range cold risks, skewing risk higher still over the next week or two,” Bespoke Weather Services said.

On Thursday, March natural gas futures settled at $3.353, up $0.070 or +2.09%.

Short-Term Weather Outlook

According to NatGasWeather for December 28 to January 4, “A strong storm will continue to bring heavy rain and snow, today focused over the Great Lakes and east-central US. However, ahead of this storm, conditions will be mild across the East with highs warming into the 50s to 70s for light national demand. Colder air will arrive over the northeastern US this weekend, with additional weather systems into the western & central US for stronger demand. After a brief milder break early next week, a colder weather systems will sweep across the country for the end of next week. Overall, national demand will be low until this weekend when it will increase to moderate then high last next week.”

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Forecast

Prices are under pressure on Friday shortly before the regular session opening and the release of the weekly U.S. Energy Information Administration storage report at 1530 GMT. After an initial reaction to the report, traders will shift their focus on the return of cold weather next week-end.

At 1215 GMT, March natural gas is trading $3.226, down $0.127 or -3.79%. This puts it above this week’s low at $3.109 and below the technical pivot at $3.384 that is the likely trigger point for an acceleration to the upside.

EIA Forecast

The consensus shows traders are looking for a withdrawal of about 50 Billion Cubic Feet (BCF).

As usual the estimates vary with a wide range of guesses. Kyle Cooper of IAF Advisors is looking for a withdrawal of 45 Bcf. Bespoke forecasts a 50 Bcf withdrawal. Bloomberg expects a pull between 39 Bcf and 56 Bcf, with a median draw of 47 Bcf.

The year is expected to end with stocks about 20% below the five-year average. This means the market will still be sensitive to the return of cold temperatures despite the current downtrend. Continue to expect to see above average volatility especially with the forecasts showing increases chances of colder weather late next week.

Watch the price action on a test of $3.384. Trader reaction to this figure should determine the direction of the March natural gas market today. A sustained move under this level will signal a resumption of the downtrend. However, overtaking it and sustaining the rally could spike prices higher.

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