Natural Gas Price Fundamental Daily Forecast – Can’t Do Much About Low Demand, but Cold May Be Coming

Natural gas futures are trading lower on Monday, but inside Friday’s range. This chart pattern suggests investor indecision and impending volatility. The market is also holding slightly above last week’s low at $2.771. The indecision is likely being fueled by reports that cold may return late in the month. Perhaps keeping a lid on prices is an early estimate of this week’s Energy Information Administration storage report, which is expected to show less than half of the average weekly draw.

At 1043 GMT, March natural gas futures are trading $2.842, down $0.063 or -2.17%.

Short-Term Weather Forecast

According to NatGasWeather for January 7-13, “A quick cold shot will race across the Northeast tonight and Monday with chilly conditions as highs only reach the 20s and 30s for locally stronger demand. Weather systems with rain and snow will track into the West the next several days but with only modest cooling. Most of the rest of the country will be mild to warm with highs of 40s to 70s, warmest across the southern US. A stronger cold shot will sweep across the Great Lakes and East Thursday-Sunday for a swing to stronger national demand after being very light Monday-Wednesday. Overall demand will be low to very low through the mid-week, then increasing to near normal.”

Mid-Term Weather Forecast

According to Bespoke Weather Services, model guidance shows “a pattern into the second half of January that could increasingly shoot colder air down into the eastern third of the country.”

“We had always been looking for cold risks to increase moving through January, and models are finally showing an increase in negative Eastern Pacific Oscillation ridging upstream that could help dislodge colder air into the Midwest and East,” Bespoke chief meteorologist Jacob Meisel said.

Forecast

Monday begins with the natural gas market in oversold technical territory and the introduction of cold into the forecast. However, when you add in another week of dismal withdrawals, you can see why traders are hesitant to play the long side. For that matter, the news isn’t even strong enough to chase away so of the weaker shorts. But we’re watching since last Wednesday’s potentially bullish closing price reversal bottom at $2.771 is still intact. The market just needs some aggressive buyer to take out an offer and I think we can run a few buy stops. The daily chart’s nearest upside target is $3.215 so there is room to run.

Traders should also keep in mind that the call for the return of cold temperatures is in its early stages, which is often the most volatile. Furthermore, European guidance still suggests warmer temperatures.

An Early Peek at This Week’s EIA Report and More Bearish News

Traders should expect a much larger withdrawal for the week-ending January 4 because of a drop in production of 1.5 Bcf/d and a jump in demand of 7.4 Bcf/d.

Furthermore, Platts Analytics says, “Expect the EIA to announce a withdrawal of 90 Bcf for the week-ending January 4. This is still less than half the normal draw for the week, reducing the deficit to the five-year average to 463 Bcf. If this trend continues throughout the rest of the heating season, stocks could well be in line or even more than the five-year Average by April.”