Natural Gas Price Fundamental Daily Forecast – EIA Report Should Show Another Week of Light Withdrawals

The market is bearish, but probably ripe for a short-covering rally. Such a move will likely be fueled by a miss in the EIA report. However, any rally is likely to be position adjusting rather than the start of another leg up. Furthermore, the major shorts are coming back in which means any rallies will be short-lived.
James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are edging higher on short-covering ahead of today’s government storage report. After gapping lower at the start of the week, the market has drifted lower, trading as low as September price levels. With heating demand low, storage numbers are rebuilding, casting a bearish pall over the market.

At 1319 GMT, March Natural Gas futures are trading $2.886, up $0.074 or +2.63%.

Even though some technical indicators are sitting in oversold areas, there doesn’t seem to be any buyers in the market. Furthermore, any rally is likely to be driven by short-covering because of the favorable weather conditions.

We may see a few higher pops in the market due to periodic cold snaps. However, without a lingering cold system on the horizon, these moves are likely to be met by renewed selling pressure.

Short-Term Weather Outlook

NatGasWeather for January 3 to January 10 is saying, “A weather system will track across the Southeast the next few days with areas of rain. The rest of the country will warm into the weekend with highs of 40s and 50s gaining ground across the northern US and 60s and 70s across the southern US. Weather systems will track into the West Coast the next several days with rain, snow, and cooler conditions. The East will become warmer than normal apart from a quick cold shot across New England late Sunday. Next week will be mild over most of the country with light demand until late in the week. Overall demand will be low to very low through the middle of next week.”

There you have it, a forecast for low to very low demand over the near-term which means we should be looking for rallies to short.

U.S. Energy Information Administration Storage Report Estimates

Traders are looking for another week of light withdrawals after the cold weather systems previously forecast failed to materialize during the last week of December.

Bespoke Weather Services is looking for a 44 Bcf withdrawal. Bloomberg is calling for a median withdrawal of 44 Bcf also, with estimates ranging from minus 31 Bcf to minus 75 Bcf.

Reuters predicts a withdrawal of 47 Bcf, with a range of minus 25 Bcf to minus 92 Bcf. The Intercontinental Exchange (ICE) EIA Financial Weekly Index futures settled on Wednesday at 33 Bcf.

My estimate is for a withdrawal of 43 Bcf.

Last week, the EIA reported a 48 Bcf withdrawal. Its report also showed inventories at 2,725 Bcf, 623 Bcf less than the year-ago period and 647 Bcf below the five-year average.

Forecast

The market is bearish, but probably ripe for a short-covering rally. Such a move will likely be fueled by a miss in the EIA report. However, any rally is likely to be position adjusting rather than the start of another leg up. Furthermore, the major shorts are coming back in which means any rallies will be short-lived.

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