Natural Gas Price Fundamental Daily Forecast – Consolidating Ahead of Updated Weather Forecast

Natural gas futures closed higher for a second day on Monday as short-sellers continued to take profits and pare positions after last week’s steep decline.

January natural gas futures settled at $2.828, up $0.056 or +2.02%.

The tepid price action suggests investors are still trying to figure out the weather pattern despite the relatively low prices. Even though the January contract is breathing on its February 2016 bottom at $2.720, buyers aren’t rushing in. The nearby contract is at a nine-month low.

The price action may also be suggesting that investors are having trouble determining demand over the near-term.

Last week, investors reacted to reports calling for the return of more average temperatures starting on or after December 15. This forecast seems to be holding, which may be why the market stopped breaking. Since this report has been factored into the market, traders are probably starting to look at forecasts for the last two weeks of December. We’ll probably get an update later today.

In the meantime, for December 12 to December 17, NatGasWeather.com is saying, “Several cold shots will sweep across the Midwest and eastern U.S. this week with lows of single digits to 20s to drive strong heating demand, although rapidly warming next weekend. The West will be most mild, apart from cold valley inversions. The South will be mild to warm with highs of 50s to 70s for light demand. Overall, national demand will be high.”

Forecast

The price action suggests traders are waiting for an updated weather forecast for the next two weeks or perhaps into January. This should determine the next move in the market.

If the next forecast is bullish then prices could spike into $2.983 to $3.038. If the forecast is bearish then sellers may drive this market through $2.720.

Looking ahead to Thursday’s government storage report, traders are forecasting a draw of about 63 billion cubic feet (bcf) in the week-ended December 8.

That compares with a gain of 2 bcf in the preceding week, a fall of 147 bcf a year earlier and a five-year average decline of 78 bcf.

According to the U.S. Energy Information Administration, total natural gas in storage currently stands at 3.695 trillion cubic feet (tcf). That figure is 264 bcf, or around 6.6%, lower than levels at this time a year ago and 36 bcf, or roughly 1%, below the five-year average for this time of year.