Natural Gas Price Fundamental Daily Forecast – January Expiration, Technical Factors Behind Tuesday’s Rebound

Natural gas futures are inching lower early Wednesday after posting a huge technical bounce the previous session. The strong comeback only added to the heightened volatility this week that began with a gap lower opening on Monday.

Analysts are saying yesterday’s rally was fueled by position-squaring ahead of the expiration of the January Nymex natural gas futures contract and robust demand for liquefied natural gas (LNG). However, I suspect that oversold technical conditions also contributed to the bounce-back.

At 09:30 GMT, February natural gas futures are trading $2.433, down $0.011 or -0.45%.

Nothing changed in the weather forecasts on Tuesday to warrant the size of the comeback rally. That offers further confirmation that the move was likely fueled by a combination of speculative bottom-pickers and not-so-aggressive short-sellers.

Tuesday’s rally probably didn’t come as a surprise to our readers since we noted in Tuesday’s commentary that the experts at NatGasWeather said this week’s earlier sell-off made the market “too bearish”. The analysts at Bespoke Weather Services added that they didn’t see much risk/reward in being bearish.

I added that, “The sell-off was impressive, but I don’t think this is the kind of move that has much more downside potential unless the forecasts for January 15 to February 1 show an unusual warming pattern.

Whatever the reason for the rally, it’s in the past so let’s move on.

Weather Models Don’t See Widespread Cold Until Mid-Month

The latest weather models don’t show potential for sustained widespread cold until January 12 at the earliest, according to NatGasWeather.

The firm said the midday Global Forecast System model held a warmer-than-normal pattern for the coming 15 days, with only the western United States to see weather systems considered cold enough to induce stronger demand. Even then, any boost in demand would be marginal.

“We continue to look to January 12-15 as the next best opportunity for more impressive cold shots to arrive into the U.S., and it will need to if weather patterns are to finally take advantage of a tighter year over year supply/demand balance,” NatGasWeather said.

“The forecaster said Tuesday’s gains are likely because of other reasons, including the January contract’s expiration. “Or, it could simply be a technically oversold bounce after prices plummeted more than 30 cents in less than 24 hours of trading.”

Daily Forecast

If the upside momentum continues on Wednesday then look for buyers to target the bottom of the gap on the daily chart at $2.507.

The new short-term range is $2.775 to $2.263. Its 50% to 61.8% retracement zone at $2.519 to $2.579 is also another potential upside target. Since the main trend is down, sellers are likely to come in on a test of this area.