Natural Gas Price Fundamental Daily Forecast – Change in Mid-Term Forecast Could Trigger Short-Covering Rally

Natural gas futures are edging higher on Monday following a steep sell-off on Friday that was driven by a warmer forecast for mid-December temperatures. Today’s rebound is probably being fueled by profit-taking and position-squaring as some traders claim Friday’s weakness was a bit overdone. Today’s move doesn’t mean the market has hit bottom. Besides the bearish forecast trends, investors are still dealing with continued production growth.

At 18:21 GMT, January natural gas is trading $2.332, up $0.051 or +2.24%.

Confusion over 11-15 Day Forecasts

On Friday, both the American and European models “agreed on a transition into a warmer regime” for the middle third of December, according to Bespoke Weather Services. The American model “backed away from this” heading into Monday’s trading, coming in “considerably colder than it showed the other day, and closer to the long-term normal for the next 15 days as a whole.”

Conversely, in its latest run ahead of Monday’s session the European model came in “even warmer than it was back on Friday,” Bespoke said. “The main difference lies in the Pacific side of the pattern,” as the American model “no longer shows a trough over Alaska out in the 11-15 day time frame, which allows some colder air back into the pattern across the U.S.”

Short-Term Weather Forecasts

According to NatGasWeather for December 1 to December 7, “Two strong storms will impact the U.S. early this week with one currently tracking through the Great Lakes and East with areas of rain and snow and highs of 30s to 50s. A milder, wetter storm will bring heavy rains to California and nearby states. The rest of the country will be mostly mild and dry to open the week besides the colder Northern Plains. A reinforcing cool shot will sweep across the Northeast mid-week with highs of 30s and 40s, but the rest of the country will be relatively mild with highs of 40s to 70s, warmest far southern U.S. Overall, demand will be moderate-high this week.”

U.S. Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported a 28 Bcf weekly withdrawal from U.S. gas stocks that fell in line with forecasts. The 28 Bcf pull, recorded for the week ending November 22, compares to a five-year average of minus 57 and a 70 Bcf pull for the year-ago period.

Natural Gas Intelligence (NGI) said, “Prior to the report, major surveys had pointed to a withdrawal around 27-28 Bcf, with expectations ranging from minus 16 Bcf to minus 42 Bcf. Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at minus 27 Bcf. NGI’s model predicted a withdrawal of 29 Bcf.”

Daily Forecast

Keep an eye on the 11 to 15 day forecast the rest of the week. There may be further upside action if the forecasts shift to more seasonal temperatures. Since Friday’s move took place under extremely low volume trading conditions, prices could claw back to around the $2.50 level over the near-term. There isn’t anything bullish in the outlook so any rallies will become shorting opportunities.