Natural Gas Price Fundamental Daily Forecast – Getting Close to Wiping Out Winter Rally

Natural gas prices are trading slightly better early Wednesday after posting a potentially bullish technical closing price reversal bottom on the daily chart. The move suggests that the buying may be greater than the selling at current price levels. Buyers came in yesterday to stop a five day sell-off at $2.695 after testing the level just slightly above the January 5 main bottom at $2.693.

At 0942 GMT, March Natural Gas futures are trading $2.766, up $0.007 or +0.23%.

Despite the rapid turnaround, the market is weak even with stocks sitting near the bottom of their five-year range. Gas stocks have been tightening progressively for 10 months, turning a surplus of 400 billion cubic feet (bcf) to the five-year average in March 2017 into a deficit of 200 bcf by the end of the year.

Gas stocks have fallen steadily since mid-December, including a record draw of 359 bcf in the first week of January, reflecting temperatures far below normal across several key demand areas across the eastern and central United States.

In reality, the winter so far has been colder than the previously abnormally warm winters in 2015/16 and 2016/17 but heating demand has been in line with the long-term average.

A return to more seasonal temperatures is the main factor driving the selling. If the U.S. had seen back-to-back lingering cold spells then we’d probably be singing a different tune. The current price action suggests the market has absorbed January huge draw with prices currently trading at levels last seen on January 5 to January 8.

Forecast

We could see a short-covering rally over the near-term. It all depends on buyers continuing to defend the bottom at $2.693.

Holding $2.693 may be enough to encourage investors to take profits and may even shake out a few of the weaker shorts. Potential upside targets include $2.810, followed by $2.896 to $2.909.

If $2.693 fails as support and the short-sellers begin piling in then look for the selling to extend into the December 21 main bottom at $2.532. Trading at this level will mean that the market has erased the entire winter rally.

According to NatGasWeather.com for February 7 to February 12, “Overall, national demand will be high through Friday – Saturday, then moderate. In other words, nothing has changed.

Thursday’s U.S. Energy Information Administration’s Weekly Storage report is expected to show a 99 bcf drawdown.