Natural Gas Price Fundamental Daily Forecast – Low Consumption, High Production Keeps Market Oversupplied

Natural gas futures finished marginally higher on Tuesday after reaching a new contract low earlier in the session. The “lower-low”, “higher-close” chart pattern has some technical traders thinking the subtle move may be the start to the long-awaited “short-squeeze” that speculative traders have been predicting for months due to the huge jump in short positions.

On Tuesday, February natural gas settled at $2.189, up $0.003 or +0.14%.

Tuesday’s session began with traders in a bearish mood due to lower prices at the majority of pricing hubs amid a projected drop in demand for the New Year’s Day holiday. Furthermore, the weather models remained bearish without a hint of optimism for speculators looking for something in the forecasts that could spark the start of a long-awaited short-covering rally.

NatGasWeather Outlook

“The overnight data was mixed as the Global Forecast System (GFS) held milder trends but did not lose any additional heating degree days (HDD). However, the important European model lost another 6 HDDs on top of the 14 it lost on Monday, and the GFS’ midday run shed 6 HDDs, clearly a bearish pattern.”

“Most of the recent lost demand has been because of less intimidating cold air into the northern United States January 6-8, followed by a mild ridge seen returning over the South and East January 10-14 that would bring much lighter-than-normal demand. Overall, it would take considerable, colder trends to undo the damage done from lost HDDs over the past 24 hours,” NatGasWeather said.

Bespoke Weather Outlook

There could be “near-record warmth in parts of the eastern United States during the middle of January, there continues to be a lack of necessary changes in the higher latitude configuration to transport colder air into key areas of the nation for natural gas consumption. Any chance of material change, should one come, still seems at least three weeks away.”

“The only missing ingredient which prevents us from putting in a bottom here is the weather, which rules in the winter season,” Bespoke said.

Short-Term Outlook

Consumption has been modest and production has soared. As a result, the U.S. market remains oversupplied in a normal weather scenario.

Bespoke, however, maintained its view that current balances would be supportive with even normal weather, “but as long as the market is stuck in a mid-winter pattern that is decisively skewed to the warmer side, prices can continue to grind lower, with a convincing break of the current $2.18 support level in prompt month pricing opening the door ultimately to a test of $2.08-$2.10, barring a weather change.”

NatGasWeather continued to hint at the possibility of a short-covering rally after Tuesday reversal to the upside saying, the strength could be from “heavily overweight” speculative shorts closing positions before the end of the year.