Natural Gas Price Fundamental Daily Forecast – Market Approaching Trigger Point for Acceleration to Upside

Natural gas futures retreated on Monday after finishing last week with a strong rally. The price action may have been muted with the expiration of the February futures contract looming. An overbought market and uncertainty over the 8 to 14 day weather forecast may have also encouraged investors to book profits after last week’s steep rise in prices.

March Natural Gas futures settled at $3.167, down $0.008 or -0.25%.

Prices fell despite the predominately bullish fundamentals. Last week’s rally and Monday’s price action suggests that the cold weather expected to hit key demand areas later this week has already been priced into the market. Traders are now waiting for more information on the next cold weather system that is forecast to arrive over the next 8 to 14 days.

The longer-term outlook is bullish so essentially back-to-back cold weather systems could lead to another surge in prices especially in the deferred futures contracts.

Traders will be paying close attention to the end-of-season inventories figures. The U.S. Energy information Administration is saying that net stock drawdowns over the last four storage report weeks totaled 1,036 Bcf, besting the previous four-week draw record of 980 Bcf that occurred in the period between January 17, 2014, and February 14, 2014, during a polar vortex.

Total working gas stocks currently sit at 2,296 Bcf, or 519 Bcf below the year-ago level and 486 Bcf below the five-year average of 2,782 Bcf, after the EIA outlined a 288 Bcf withdrawal for the week ended January 19 that tied as the second-largest stock drawdown since the data collection began.

Forecast

The EIA said that if storage draws were to match the five-year average for the remainder of the heating season, working gas stocks would total 1,216 Bcf on March 31, or 29% lower than the five-year average.

That’s bullish news, but in order to reach this level, temperatures have to remain cold in the major demand areas. Any warming trend would slow down the pace of storage erosion.

Natural gas prices are trading higher early Tuesday. At 0800 GMT, March Natural Gas is trading $3.224, up 0.056 or +1.77%. Prices are now trading above last week’s high, suggesting the buying is getting stronger.

The next levels to overcome are the November 10 top at $3.272 and the October 23 top at $3.279. These levels are the trigger point for an acceleration into the September 19 top at $3.391.

The expiration of the February futures contract makes March the front-month. This means investors should start to see increased volatility.