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James Hyerczyk
Natural Gas

Natural gas futures are inching higher on Tuesday but the market remains rangebound for a second session as traders continue to monitor the weather forecasts for any clues that might lead in a change in the main trend to up, or signal a resumption of the downtrend. There is cold in the forecasts, just not enough to spook the weak short-sellers into covering, or bring in a wave of aggressive speculative buyers.

At 09:21 GMT, March natural gas is trading $2.162, up $0.004 or +0.19%.

Short-Term Outlook

Natural Gas Intelligence (NGI) said, citing Bespoke Weather Services, despite some volatility in recent model runs, the latest weather data Monday remained consistent in showing a return to “at least” near-normal demand starting early next week.

“That did not stop sellers from stepping in” Monday, “although the curve did improve throughout the day…and prompt month prices closed a couple of cents of their lows,” Bespoke said. “…We struggle to find reasons to sell here, as midday model runs still show consistency on a new pattern, and the background fundamental picture, if anything, has improved some in our data.”

Analysts at EBW Analytics Group said, with models showing a step-change higher in heating demand by next week, the question remains how and when the market might respond.

“The timing, magnitude and duration of any move up remains to be seen,” they said. “Extreme warm weather is expected to continue for several more days, retraining cash prices – and near-term weather has been trending warmer than predicted all winter.”

“If the weather pattern shift occurs this coming weekend, as currently predicted, demand for natural gas could jump by more than 20 Bcf/d and remain elevated for three to three and a half weeks, pushing prices higher.”

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Are Money Managers Betting on Rally?

Analysts at Enverus noted that recent data from the Commodity Futures Trading Commission (CFTC) indicated a slight shift in bullish sentiment.

CFTC data showing positions as of December 31 “had an increase of just 632 contracts in the managed money short position, while he managed money long position increased by 4,759 contracts,” the Enverus analysts said. The following report, released last Friday with positions as of January 7, showed the short sector rebounding with an increase of 24, 673 contracts.”

“Interestingly, the managed money long position was also more active with an increase of 15,295 contracts, suggesting that a base may be building for the speculative bulls.”

Daily March Natural Gas

Daily Forecast

Our work on the daily chart also suggests the base building process may have begun with the formation of a closing price reversal bottom on January 3 and a subsequent confirmation of the chart pattern. It will remain intact as long as $2.062 holds.

The short-term range is $2.290 to $2.062. Its 50% to 61.8% retracement zone at $2.176 to $2.203 is new resistance.

We’re likely to continue to see selling pressure as long as prices remain under $2.176. However, a sustained move over $2.203 will indicate the buying is getting stronger. If this move creates enough upside momentum. Then we could see an eventual move to $2.290.

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