Natural Gas Price Fundamental Daily Forecast – Forecast for “Strong Warming” Creates Doubts for Bulls, Kills Chances of Rally

Natural gas prices gapped lower on the daily chart early Monday. We have to assume that the week-end weather came in as expected and that the forecasts for the key February 4 to February 9 period are coming in warmer than previously expected. It also looks like the spot market got it right since the week-ended with prices dipping.

At 0716 GMT, March natural gas futures are trading $2.878, down $0.194 or -6.32%.

Although futures prices ended Friday on an up note, in hindsight, it looks like position-squaring or short-covering ahead of the week-end. Having been burned in December by cold weather forecasts that didn’t pan out, long traders have been very cautious about trading the weather reports. Last week, Bespoke Weather Services said, “Many traders opted to sell now and ask questions later.”

U.S. Energy Information Administration

At the start of the week, Total Lower 48 working gas in underground storage stood at 2,370 Bcf, 305 Bcf (11.4% below the five-year average but 33 Bcf (1.4%) higher than last year’s stocks, according to the U.S. Energy Information Administration.

The EIA also reported a decrease in production the week-ending January 18 to 87.4 billion cubic feet per day (Bcfd), compared to 88.3 Bcfd the week before.

Short-Term Weather Outlook

According to NatGasWeather for the period January 28 to February 2, “A brief milder break will sweep across the East Monday with temperatures reaching the 40s to 60s besides colder air across New England. However, a dangerous polar blast will be advancing into the Midwest the next couple days with frigid lows of -40F to -0s, then spreading across the Ohio Valley and Northeast for extremely strong demand. Heavy snow will accompany the cold front across the Midwest Monday, then with increasing snowfall across the South & Southeast, and East Tuesday – Wednesday. The polar blast will exit Friday-Saturday with strong warming to follow next weekend. The West will be mild across coastal states but colder for the Mountain West. Overall, national demand will increase to very high Tuesday to Friday, then easing.”

Forecast

With this week’s forecast from NatGasWeather calling for “strong warming to follow next weekend”, the early selling pressure is likely to control the direction of the market all day. Prices could drop all week unless the new forecast for February 4 to February 9 comes in colder than expected.

Downside pressure could challenge former bottoms at $2.809 and $2.771. Under $2.771 we could start to see some profit-taking and short-covering, but this won’t indicate the formation of a major bottom. It will be designed to set up the next shorting opportunity since the bears and short-sellers are definitely in control.

It’s hard to get excited about buying weakness in this trading environment. At the same time, it’s difficult to buy strength. Therefore, uncertainty is likely to keep the bulls on the sidelines.