Natural Gas Price Fundamental Daily Forecast – Early Weakness Suggests Overnight Changes to Cold Forecasts

Natural gas futures are trading lower on Tuesday after failing to follow-through to the upside following yesterday’s ‘gap-and-go’ trading session. The price action suggests there may have been a late session change in the weather forecasts. On Monday, prices soared after weekend forecasts called for substantially colder weather and stronger heating demand.

At 09:14 GMT, December natural gas futures are trading $6.524, down $0.420 or -6.05%. On Monday, the United States Natural Gas Fund ETF (UNG) settled at $21.72.

Monday Recap

U.S. natural gas price soared about 9% to a one-month high on Monday on forecasts for colder weather and more heating demand in mid to late November than previous expected.

Traders also said futures were bolstered by a drop in output so far this month and expectations the Freeport liquefied natural gas (LNG) export plant in Texas would return to service soon.

Short-Term Weather Forecast

According to NatGasWeather for November 8 – November 14, “The eastern half of the U.S. will remain warmer than normal through Friday with highs of 60s to 80’s besides the Northeast, where a glancing cool shot will drop highs into the 50s.

The West & Plains will be cool to cold as chilly weather systems sweep through with rain, snow, and highs of 10s to 50s.

Frosty air over the West will spread eastward across the rest of the U.S. Friday-Monday with rain, snow, and frosty lows of minus 10 to 30s, coldest across the Midwest.

Chilly air will also advance into the southern U.S. this weekend with lows of upper 20s to 40s, including Texas.

Overall, low demand through Friday, then increasing to high.”

Early Peek at This Week’s EIA Storage Report

Analysts are predicting another stout increase in this Thursday’s inventory report. Early estimates for the week-ended November 4 submitted to Reuters ranged from injections of 65 Bcf to 105 Bcf, with an average increase of 81 Bcf. That compares with a five-year average build of 20 Bcf.

One more big storage increase could follow, given a mild weather start to the current week.

Daily Forecast

The early price action suggests prices could retreat throughout the session as long as the weather forecasts keep predicting less-cold than they did early Monday. Nonetheless volatility is expected to remain high.

According to the latest data, rapid changes over the past couple of weeks – futures gained or lost over 5% on eight of the past 10 days – boosted the contract’s 30-day implied volatility index to its highest since October 2021.

Additionally, with gas prices up for two weeks in a row, speculators last week cut their net futures and options positions on the New York Mercantile and Intercontinental Exchanges for the first time in three weeks to their lowest since late September, according to the U.S. Commodity Futures Trading Commission’s Commitments of Traders report.

Traders will be watching for a short-term pullback into a value area where new buyers will be waiting. For the longer-term bulls, it’s important for traders to start buying the dips in order to solidify the uptrend with a series of higher bottoms and higher tops.