Natural Gas Price Fundamental Daily Forecast – Contract Expiration, Big Short Position: Ingredients for Whip-Saw Trade

Natural gas futures are trading lower on Tuesday, continuing yesterday’s steep sell-off that was fueled by a new forecast calling for milder-trending temperatures. Adding further to the weakness were concerns about oversupply. Activity in the spot market was mixed with prices trading higher on the West Coast due to an approaching storm, and lower throughout the rest of the country.

At 12:03 GMT, January natural gas futures are trading $2.526, down $0.058 or -2.21%.

Weather Woes Sink Prices

Prices were drilled lower on Monday after midday Global Forecast System (GFS) showed warmer temperatures were coming, including less cold for the period from Thursday through December 6, according to NatGasWeather. Additionally, the GFS was “faster to warm up conditions” across the Lower 48 after December 6.

“The natural gas markets are clearly disappointed in such a quick milder trend showing up, but losses could also be exacerbated” by Monday’s options expiration and the looming expiration of the front month contract on Tuesday, NatGasWeather said. “The latest GFS does tease cold continuing across the northeastern U.S. December 7-10,” but coming off a “big loss in demand” from recent data, “it’s possible the natural gas markets won’t bite on anything that far out.”

Money Managers Increased Short Position

Commodity Futures Trading Commission data as of last Tuesday (November 19) showed the managed money short position increasing by 41,816 contracts week/week, while the managed long position decreased by 8,831 contracts, according to analysts at Enverus.

Daily Forecast

Early Tuesday, January natural gas futures took out the last two main bottoms at $2.521 and $2.520, but quickly regained these levels. This indicates that the initial breakdown was fueled by sell-stops. If the selling pressure continues through today’s intraday low at $2.511 then we could see an extension into the September bottom at $2.484.

With today’s looming futures contract expiration, be prepared for heightened volatility and whip-saw action. The size of the speculative short position also makes the futures contract vulnerable to a short-covering rally later in the session.