Advertisement
Advertisement

Natural Gas Price Fundamental Daily Forecast – Hedge Funds Providing Reason to Look to Long-Side

By:
James Hyerczyk
Published: Oct 28, 2020, 12:48 UTC

November futures hit a two-year high this week and the major money managers are expecting the December futures contract to continue the rally.

Natural Gas

Natural gas futures are edging lower on Wednesday after surging the previous session. Yesterday’s rally had little to do with Hurricane Zeta although there are some analysts who will continue to blame storms in the Gulf of Mexico for every little up move in the market. Their focus seems to always be on production, but I don’t think they understand the impact of a hurricane on liquefied natural gas (LNG) exports.

Production may drop because of a short-term shutdown of natural gas and crude oil platforms, but this market is being driven by LNG demand, which has an even bigger influence on prices.

At 11:47 GMT, December natural gas is trading $3.279, down $0.032 or -0.97%.

Spec Trading Behind ‘Rare’ Intraday Price Behavior – Natural Gas Intelligence

According to Natural Gas Intelligence, Tuesday’s price spike had little to do with supply or demand. Instead, analysts said options trading and massive speculative positioning ahead of the November Nymex contract’s upcoming expiration factored into Tuesday’s price behavior.

“It is rare for a market to print a multi-year high the previous day, slide below a big whole number the next day, and then gather itself up a reverse higher,” said Mizuho Securities USA’s Robert Yawger, director of Energy Futures. “You have to wonder, who are the traders who buy these dips and continue to push higher?”

Yawger said Tuesday’s rally obviously was a “spec run phenomenon,” with Commodities Futures Trading Commission (CFTC) data indicating the combined Intercontinental Exchange/Nymex Henry Hub position is net long more than 500,000 contracts. To put it into context, “civilized contracts” such as gold sport a CFTC net long speculative position of 135,000 contracts, Yawger said. Crude oil was net long 332,000 contracts.

Short-Term Weather (7-10 Day) Outlook

According to NatGasWeather for October 28 to November 4, “An early season cold front continues to impact the interior West, Plains, and Midwest with rain, snow, and chilly lows of 10s to 30s, including snow into Northern Texas with lows of 20s. The East remains warm with highs of 50s to 70s. Heavy rain and wind will push into the Gulf Coast and east-central US Wednesday through Thursday as Tropical Storm Zeta makes landfall. Late in the week, the Midwest and central US will warm back into the 50s to 70s, while the Northeast cools into the 30s to 50s as weather systems sweep through. Overall, national demand will be high this week.

Daily Forecast

With the hedge funds long, we’re going to continue to lean toward the long-side but we aware of the possibility of heightened volatility ahead of the expiration of the November futures contract.

November futures hit a two-year high this week and the major money managers are expecting the December futures contract to continue the rally. Right now the December contract is being supported by increasing LNG demand and lower production. Once the weather turn cold, prices should be off to the raises.

Solid short-term support seems to have been established at $3.177 to $3.133. The question is whether traders can handle the risk of chasing this market higher before the colder weather arrives.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement