Natural Gas Price Fundamental Daily Forecast – Could See One More Jump to $3.60 to $3.68 Before Sellers Arrive

Natural gas futures spiked higher on Monday as buyers shifted into high gear from the opening on forecasts of intense colder trends over the medium term. The market gapped higher on the opening and stayed bid all session as buyers responded immediately to a change in the forecasts released over the week-end.

The market closed on its high, but is giving back some of those gains early Tuesday as investors continued to digest the weather data, while trying to figure out if they should continue to chase the market higher, or play for a pullback into new higher support levels.

At 0155 GMT, December Natural Gas futures are trading $3.544, down 0.023 or -0.64%.

In addition to driving prices higher in the futures market to their highest levels since January 2018, the physical markets also jumped 30-50 cents across much of the Lower 48.

The new forecasts released over the week-end revealed significantly more intense cold temperatures arriving later this week and into next week. The fact that the winter heating season is set to begin with inventories at historically low levels, any mention of extended or severe cold weather was widely expected to send prices higher, but Monday’s gains really caught the short-sellers by surprise.

Going into the week-end, the weather services were indecisive as to when the cold weather would arrive in November. One model in particular was even calling for warmer temperatures in mid-November. Monday’s price action strongly suggests that short-sellers were truly caught off guard by the sudden change in the forecast and were more than willing to pay anything to cover losing positions.

NatGasWeather summed it up this way saying Monday proved a “vicious day for those that held short over the weekend.” They went on to say that their earlier forecasts for a series of cold shots expected to arrive later this week and extend into mid-November, “looks quite impressive”. Additionally, they now expect national heating degree days to jump to “much greater than normal” levels.

“Cold is favored to gradually lose its grip November 17-20, although we expect changes out that far since we see ways cold is slow to erode,” NatGasWeather said. “What will be of considerable interest” is the EIA data later this month, which will provide the market’s “first opportunity to see how record production and widespread sub-freezing conditions collide to impact draw size.”

Forecast

According to Bespoke Weather Services, we may not have seen the high yet. They cited Monday’s recovery from mid-session weakness to close at its high as one reason. “This indicates that the high is likely not yet in, and if we see the same medium-range cold signal on overnight European guidance that we saw” Monday afternoon “we would look for $3.60 to be tested,” the firm said.

“However, we have shifted our sentiment back to neutral with risks becoming more mixed at these elevated price levels. Though we are looking for two very significant cold shots in the medium-range, the first one has begun to moderate on guidance as it moves into the short-range, a trend that would throw the intensity of each cold shot into question if it continues overnight” and Tuesday.

Basically, they are saying that with prices approaching their resistance at $3.60 and my technical resistance at $3.683, buyers should be a little cautious about adding to long positions between these two price levels. This is because the cold weather systems could start to weaken. However, they may not weaken enough to encourage speculators to implement new short positions.

In other words, it’s probably a good idea to lighten up on the long side between $3.70 and $3.68 and wait to see how the forecasts play out.