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James Hyerczyk
Natural Gas

Natural gas futures are trading higher early Thursday and on the strong side of a key retracement zone as traders continue to react to reports calling for a fresh round of colder-trending weather. Position-squaring ahead of the U.S. Energy Information Administration weekly storage report later today could also be providing support after a steep six-day sell-off. Helping to keep a lid on prices, however, is a weaker spot market.

At 06:42 GMT, January natural gas futures are trading $2.766, up $0.074 or +2.75%.

 Afternoon Weather Data Trends Colder

“What had been a rather uneventful session in the natural gas market suddenly got very interesting” Wednesday afternoon, Bespoke Weather Services said.

Once the data from the afternoon European model trended colder, “it appeared to provide the spark needed to send prices much higher” after the December contract settled at $2.600. “Getting a piece of bullish data right at solid support is notable, but this also marked the third day in a row of colder trends, and the market seems to be saying that’s enough to warrant a move back higher.”

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Short-term Weather Outlook

According to NatGasWeather for November 13 to November 19, “A frigid Arctic blast continues across much of the US east of the Rockies this morning with lows of -0s to 20s for very strong national demand. Cold will gradually ease today and Thursday before a reinforcing cold shot track across the Northeast Friday to Sunday. The West will be mostly mild and dry with highs of 50s to 80s, coolest Northwest. Much of the US will warm next week to near or warmer than normal, then cooling across the northern US again late next week. Overall, very high demand into the coming weekend.”

Daily Forecast

The U.S. Energy Information Administration (EIA) weekly storage report and updated 11-15 day weather forecasts will drive the price action on Thursday.

The EIA report for the week-ending November 8, due to be released at 15:30 GMT, could show the season’s first withdrawal or an injection in the single digits, according to estimates. Natural Gas Intelligence (NGI) is reporting that a survey of responses as of Wednesday showed expectations clustering around a range between minus 9 Bcf and plus 9 Bcf.

Bloomberg is predicting a 2 Bcf withdrawal, while a Wall Street Journal survey pointed to a 1 Bcf withdrawal. According to a Reuters survey, the EIA will report no net change. The ICE Intercontinental Exchange EIA Financial Weekly Index futures settled Tuesday at a withdrawal of 3 Bcf. NGI’s model predicted a 4 Bcf injection.

Daily January Natural Gas

Technically, the main trend is down according to the daily swing chart. The main trend turned down on Wednesday when sellers took out $2.676. However, the strong rebound rally after the sell-off into $2.660 indicates the move was likely fueled by sell-stops rather than fresh shorting pressure.

The main range is $2.520 to $2.980. Its 50% to 61.8% retracement zone is $2.750 to $2.696. This is the key area to watch today. The short-term range is $2.980 to $2.660. Its retracement zone is $2.820 to $2.858.

Holding above $2.750 will produce an upside bias with $2.820 to $2.858 the next potential target. Sellers could return on a test of this area.

A sustained move under $2.696 will signal the return of sellers. However, be careful shorting weakness if the selling volume is weak or below average. You don’t want to get caught in a bear trap.

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