Natural Gas Price Fundamental Daily Forecast – Mixed Weather, Production Drop Causing Two-Sided Trade

Natural gas futures are trading slightly lower on Tuesday after posting a strong short-covering rally the previous session. On Monday, there was no follow-through to the downside despite the sharp break and weak close at the end of the month on Friday. While we don’t expect to see a change in trend due to upcoming favorable weather conditions, predictions of weaker demand and record production, we will not be surprised by periodic short-covering rallies as traders position themselves ahead of the start of injection season.

At 07:27 GMT, May natural gas is trading $2.702, down $0.005 or -0.18%.

Prices rose sharply as short-sellers were caught on the wrong side of a change in the short-term weather forecasts and a steep drop in production, forcing them to cover.

According to reports, futures rose in reaction to a strengthening in the cash market due to forecasts of cold blasts that were expected to send overnight temperatures in the 20s and 30s across the northern, central and eastern United States. This was expected to lead to strong national demand over the next couple of days.

Short-Term Weather Outlook

According to NatGasWeather for April 1 to April 7, “A cool blast will cover much of the country to open the week besides portions of the West and far southern US. With lows of 20s and 30s across the northern, central, and eastern US, including 30s into Texas and the South, national demand will be strong the next couple days. However, during the second half of the week, mild high pressure will build east of the Rockies with highs of 50s and 60s across the northern US, with 70s and 80s across the central and southern US. The West will see increasing showers but only slightly cool. Overall, national demand will swing from high early in the week to low by late in the week, averaging out to moderate.”

Mid-Term Weather Outlook

NatGasWeather also noted that “the weekend weather data trended warmer for this coming weekend with very light demand but was a little cooler trending April 10-15^th, especially with a weather system tracking across the northern US April 11-12. The coming pattern is still overall bearish with builds in supplies lining up numerous deep, just not quite as bearish as the data showed on Friday.”

Bespoke Weather Services said, “Weekend weather models showed a mix of changes, with a warmer six- to 10-day change outweighing a small cooler change in the 11- to 15-day time frame. Overall, the first half of April is depicted as warmer than normal, with total gas-weighted degree days near 30 below climatology for the period. Of note, however, is a shift in the modeling, especially in the European ensembles, that poses cooler risks to the current forecast after the opening week to 10 days of the month.”

Early EIA Forecast

Thursday’s Energy Information Administration (EIA) weekly storage report is expected to show the first build of the year, coming in at around 10 Bcf. This is being called bearish because the five-year average is for a 23 Bcf withdrawal.

Daily Forecasts

The mixed short-term weather pattern could cause a two-sided trade this week, which means traders will have to pay attention to the daily chart to gauge strength and weakness. Based on the price action the past three sessions, the key level to watch is $2.709.

Prices could weaken toward last week’s low at $2.656 on a sustained move under a technical retracement level at $2.709. However, crossing to the strong side of this price could trigger a short-covering rally into $2.745. This is another trigger point for a potential acceleration to the upside.