Natural gas futures spiked higher on Monday with the market crossing to the strong side of a key technical area on the chart. If the technical area holds as support then this could create enough upside momentum to continue the move.
At 1138 GMT, December Natural Gas futures are trading $3.068, up $0.084 or +2.82%.
The short-term range is $3.198 to $2.847. Its 50% to 61.8% retracement zone is $3.023 to $3.064. The market gapped this zone on the opening so know we have to consider this area as support. A sustained move over this area will indicate the presence of buyers. This may create enough upside momentum to drive the market towards its recent top at $3.198.
The price action suggests that buyers may have caught short-sellers by surprise. The gap higher was likely triggered by buy stops and short-covering, however, if the rally continues to gain traction and $3.064 to $3.023 holds as support then we’ll have to assume that new buyers are coming into the market.
Today’s price action may be related to a change in the forecast for U.S. consumption. Late last week, Thompson Reuters forecast U.S. gas consumption to rise to an average of 84.8 billion cubic feet per day (bcfd) this week from 79.1 bcfd this week.
Traders may also be reacting to the biggest weekly drop in the number of producing oil rigs in two years. This news may actually be having a positive effect on natural gas production.
A change in the weather forecast may also be behind the gap higher opening.
According to natgasweather.com for the November 6 to November 12 period, “Weather systems with rain and snow will impact West and north-central U.S. with chilly conditions and lows mostly of teens to 30s.”
“The East Coast will be warm Monday with highs of upper 60s to 80s, but will drop into the upper 40s to lower 60s as a cool front sweeps through mid-week. “
“A rather cold weather system will track across southern Canada and across the upper Midwest and Northeast Friday to Saturday for a surge in heating demand.”
“The southern U.S. will be mild to warm with highs mainly in the 70s and 80s.”
“Overall, demand will be moderate through Thursday, then high Friday through Sunday.”
Today’s rally could pick up strength if $3.064 to $3.023 holds as support. I don’t think this move is being driven by aggressive buying, but if a strong bid comes in to support the market, the short-sellers may start to cover their positions aggressively.