Natural Gas Price Fundamental Daily Forecast – Overdue for Short-Covering Rally; $3.090 to $3.108 First Target

U.S. natural gas prices closed higher on Tuesday after the inability to break through Monday’s low triggered a short-covering rally. There were no major shifts in the fundamentals so the move was likely fueled by price action related to oversold technical conditions.

December Natural Gas finished at $3.071, up 0.053 or +1.76%.

According to natgasweather.com for the October 11 to 17 period, “A weakening weather system will bring showers to portions of the eastern U.S., although still quite mild.”

“It remains chilly over the Rockies and Plains, but with comfortable conditions over Texas and the South.”

“High pressure will strengthen east of the Plains late in the week into next week where above normal highs of 60s to lower 80s will impact the Great Lakes to Northeast, with 70s to lower 90s across the southern U.S.”

“The West will see a mix of warm and cool, averaging out near normal.”

“Overall, demand will be Moderate to low.”

Forecast

Technically, it’s a little too early to call for a seasonal low. Firstly, I’d like to see a solid support base built before I’ll trust any rally.

If the short-covering rally continues then look for a move into $3.090 to $3.108. Overcoming this area will be a sign of strength with the next key levels coming in at $3.167, $3.183 and $3.223.

The expected rise in natural gas production is a cause of concern for traders at this time. Essentially, rising production and flat demand are weighing on prices.

Production in the lower 48 U.S. states rose to an average 73.9 billion cubic feet per day (bcfd) over the past 30 days, from 70.2 bcfd a year earlier and just off the 74.1 bcfd seen during the same period in 2015, when output for the year was at a record high.

Thompson Reuters is projecting U.S. gas consumption will slip to 71.3 bcfd this week and the next, as against 74.3 bcfd last week. This indicates there are no heating degree days and the warming weather is not going to result in a demand surge.

Additionally, meteorologists are predicting temperatures would be warmer than usual in November and December, colder than usual in January and near normal in February.

The trend is down and expected to continue over the near-term as sellers continue to probe the downside for support. In the meantime, we’re still vulnerable to periodic short-covering rallies because of oversold conditions, but these are likely to be shorting opportunities.