Natural Gas Price Fundamental Daily Forecast – ‘Just Enough Cold’ Late January Fuels Short-Covering Rally

Natural gas futures closed higher on Friday after recovering from an early session loss. The market opened under pressure as overnight forecasts pointed toward a short-term warming trend, but prices turned up at the mid-session as volatile midday outlooks shifted back to expectations for a severe winter chill in late January that could trigger a surge in heating demand.

On Friday, March natural gas futures settled at $2.696, up $0.066 or +2.51%. The strong gains more than offset losses from the previous session that were fueled by forecasts calling for warmer temperatures.

Midday Weather Forecasts Reverse Early Session Weakness

“We finally see a colder pattern arrive here as we head into late month” focused on central and western portions of the lower 48, “but with some cold bleeding eastward” under a North Atlantic Oscillation block in the Atlantic, Bespoke Weather Services said.

“Because the strongest cold looks to focus back from the Plains to the Pacific Northwest, it’s not an extreme pattern to the cold side in terms of national demand, but it’s easily the coldest we have seen all season long,” the firm added. “We continue to believe this can give us a couple of colder weeks before potentially moderating after the first week or so of February.”

Cash Prices Advance

Natural Gas Intelligence (NGI) reported that spot gas prices advanced Friday after a bout of harsh winter weather in the upper reaches of the central United States.

“Blizzard conditions blanketed much of the Upper Midwest late Thursday and into Friday, and forecasters said the weather system, bringing both rain and snow, was expected to extend from the Great Lakes to portions of the East over the weekend,” NGI wrote.

“Prices in the Northeast surged Friday and led the overall gains. Algonquin Citygate spiked $2.185 day/day to average $5.205 and PNGTS jumped 79.5 cents to $4.990,” according to NGI.

‘Price gains generally were much more modest in other regions. In the Rocky Mountains, CIG picked up 5.5 cents to $2.635, while in Appalachia, Columbia Gas climbed 5.0 cents to $2.580. Out West, there were a few hubs that lost ground. SoCal Citygate shed 12.5 cents to $3.260, while El Paso S. Mainline/N. Baja dropped 6.0 cents to $2.830,” NGI reported.

Short-Term Outlook

Friday’s overall gains aside, looking ahead to the third week of January, temperatures were expected to be above normal outside of the northern Plains and interior West, NatGasWeather said on Friday. “With high pressure ruling most of the rest of the United States,” national heating degree days “will be much lighter than normal.”

NatGasWeather experts went on to say that gas prices may have to wait until late January and the anticipated widespread surge in cold to generate and sustain upward momentum.

Technically, the key support zone is $2.552 to $2.485. The major resistance zone is $2.794 to $2.918. The upper or Fibonacci level is a potential trigger point for an acceleration to the upside. Overcoming this level is not an automatic buy, traders still have to watch the price action and read the order flow if this level is taken out. If the volume isn’t there to support the move then overly aggressive longs could get caught in a bull trap.