Natural Gas Price Fundamental Daily Forecast – Not Enough Cold in Forecast to Sustain a Rally

Natural gas prices are inching higher early Tuesday, but struggling to gain traction amid warm weather forecasts that continue to cap gains. Nonetheless, the market remains inside a one-month trading range that suggests there is enough speculative buyers betting on the emergence of winter to underpin prices. If they decide to pull their bids, however, then look for the start of another steep sell-off.

At 11:48 GMT, March natural gas futures are trading $3.662, up $0.80 or +2.23%.

Technical Bias to Downside

The main trend is down according to the daily swing chart. A trade through $3.912 will change the main trend to up, while a move through $3.416 will signal a resumption of the downtrend.

The mid-point of the main range is $3.679. This price has been acting like a pivot for about a week. Reaction to this pivot could give traders an early indication of a shift in momentum or a continuation of the trend.

On the upside, after changing trend, the key level to overcome will be $3.964. If buyers can build a support base on the bullish side of this level then we could see the rally extend into $4.378.

On the downside, a sustained move under $3.416 will put $3.186 on the radar. This is a potential trigger point for an even steeper decline into $2.624 over the longer-term term.

Bullish Speculators Just Can’t Catch a Break

On Tuesday, the early fundamentals were bullish. The forecasts were calling for a short-term cold snap and prices were up 24% in Europe, helping to boost demand for U.S. liquefied natural gas (LNG).

However, an early morning rally fizzled after midday forecasts called for less cold weather and lower heating use over the next two weeks than previously expected. This drove prices about 3% lower at the close, forcing weak speculative longs out of the market.

Short-Term Outlook

Ahead of Wednesday’s regular session opening at 13:00 GMT, natural gas is a little higher, hovering just above its recent six month low. This suggests that forecasts calling for cold into Friday may be propping up prices.

We’ve seen lately, however, that there are two moves during the session. The first is the early trade based on the overnight forecasts. The second is a reaction to the midday forecast. This suggests a lack of confidence in the forecasts by traders.

According to Bespoke Weather Services, cold temperatures could linger and extend into next week, driving the strongest stretch of national heating demand so far this winter. This may be enough to underpin prices early, but it’s going to take a confirmation of this forecast at midday to sustain the move.

Look for choppy, rangebound trading until there is a lingering cold front or a polar vortex in the forecast. Or until there is enough warmth in the forecast to encourage traders to throw in the towel for the season.