Natural Gas Price Fundamental Daily Forecast – Higher as Speculative Bulls Play for Colder Temperatures

Early in the session on Monday, we’re going to be watching the price action. Later in the session, the weather forecasts will be updated. We should find out at that time if the early rally is being fueled by a forecast calling for increased demand over the next 11 to 15 days, or if it is being driven by speculative buying.
James Hyerczyk
Natural Gas

Natural gas futures are trading higher early Monday, following through to the upside following Friday’s potentially bullish closing price reversal bottom. The price action the last two days indicates bargain-hunters and bottom-pickers may be trying to establish early positions ahead of the winter season.

Friday’s price action suggests traders are already thinking about cold weather returning with the nearby November futures contract losing $0.004, while the December and January futures contracts were posting gains of $0.04 and $0.043 respectively.

At 07:31 GMT, December natural gas is trading $2.498, up 0.041 or +1.67%.

The early strength may be catching some of the weaker short-sellers off guard because ahead of the week-end, the weather wasn’t suggesting the reemergence of stronger demand. Furthermore, the spot market was trending lower, production was trending higher and traders were mentioning the possibility of a triple-digit build in this week’s government storage report.

Short-Term Weather Outlook

According to NatGasWeather for October 14-20, “High pressure will rule the southern US to open the week with highs of 70s and 80s, locally 90s. A weak weather system will provide a glancing cool shot across the far northern US Monday, followed by a stronger cool shot mid-week that tracks out of the Rockies and Plains with lows of 20s & 30s for stronger demand. This system will also cool portions of Texas and the South mid-week. The West will see a mix of weather systems and warm breaks with highs in the 50s and 60s north and 70s to lower 90s over California and the Southwest. Overall, stronger demand this week compared to last week due to stronger northern US cooling.”

U.S. Energy Information Administration Weekly Storage Report

Last week, the EIA reported that domestic supplies of natural gas rose by 98 billion cubic feet for the week-ended October 4. Trader estimates ranged from an 80 Bcf injection to a 107 Bcf injection.

The EIA reported a 91 Bcf build for the same week last year, and the five-year average stood at 89 Bcf.

Total stocks now stand at 3.415 trillion cubic feet, up 472 billion cubic feet from a year ago, but 9 billion below the five-year average.

Daily December Natural Gas

Daily Forecast

Early in the session on Monday, we’re going to be watching the price action. Later in the session, the weather forecasts will be updated. We should find out at that time if the early rally is being fueled by a forecast calling for increased demand over the next 11 to 15 days, or if it is being driven by speculative buying.

The trend is down, but Friday’s price action and today’s early follow-through rally indicate that momentum may be shifting to the upside.

Overcoming and sustaining a rally over $2.478 will indicate the buying is getting stronger.

The key level to watch is $2.568. Taking out this level will change the trend to up. If accomplished with rising volume, it could trigger a further rally over the near-term into at least $2.636.

Relatively low prices for this time of the year may be underpinning the market, but it’s going to take a major shift in the weather forecasts to change the trend to up.

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