Natural Gas Price Fundamental Daily Forecast – Cold is Returning but Will it Stick Around?

If traders follow the weather pattern, then we could see a few days of counter-trend buying. Most likely this will be weaker shorts covering positions. More aggressive buyers and perhaps some short-covering from the big boys will take place if the cold temperatures called for on January 21-22 develops into something significant.
James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are edging higher early Tuesday, underpinned by forecasts of colder temperatures later in the month. The price action suggests a short-term bottom may be forming with the market posting three consecutive days of higher lows since the formation of a potentially bullish closing price reversal bottom at $2.771 on January 3. The market has also clawed back above previous bottoms at $2.810 and $2.890, suggesting some light short-covering.

At 0802 GMT, March natural gas futures are trading $2.909, up $0.062 or +2.18%.

Daily March Natural Gas

The daily chart indicates there is room to the upside with potential targets clustered around a short-term 50% level at $3.215. A pair of downtrending Gann angles at $3.208 and $3.219 are also potential resistance levels.

Although these are valid upside targets, the market is not likely to reach these levels unless there is a catalyst. The obvious catalyst will be a forecast calling for the return of colder temperatures.

Helping to support the market today may be the new forecast from NatGasWeather, which is calling for cold to creep into key demand areas between January 10 and January 15.

“The January 10-15 period would look more impressive if it wasn’t for strong high pressure quickly returning January 16-20 to again warm vast stretches of the country back above normal and where the data has been milder trending since late last week,” NatGasWeather said. “We therefore look to around January 21-22 for better chances of more ominous cold to arrive out of Canada and where” the Global Forecast System had “teased a rather cold pattern” before backing off slightly in Monday’s midday data.

“Until frigid cold looks convincing in pushing across the U.S./Canada border into the northern and eastern U.S., we must expect weather sentiment to remain at least somewhat bearish. This will need close watching as colder trends for the last week of January can quickly show up due to the amount of polar air over Canada.”

Forecast

If traders follow the weather pattern, then we could see a few days of counter-trend buying. Most likely this will be weaker shorts covering positions.

More aggressive buyers and perhaps some short-covering from the big boys will take place if the cold temperatures called for on January 21-22 develops into something significant.

If there is a meaningful short-covering rally then new short-sellers will likely be waiting at $3.215. This price presents the best potential upside target at this time.

An Early Look at This Week’s EIA Report and Longer-Term Bearish Outlook

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.”

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