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James Hyerczyk
Natural Gas

Natural gas is trading lower on Wednesday after fulfilling its technical obligation the previous session. Last Friday, the market plunged through the previous main bottom at $2.475 on an extremely low volume day. The selling was primarily fueled by sell stops. Yesterday’s rally back to $2.510 actually gave traders who missed the move, a secondary opportunity to short the market.

At 16:56 GMT, January natural gas is trading $2.396, down $0.045 or -1.84%.

Natural Gas Intelligence (NGI) said, “With the demand outlook dented by overnight warming from the major weather models, natural gas futures pulled back early Wednesday.”

Bespoke Weather Outlook

Additionally, Bespoke Weather Services said, Weather models, particularly the American model, have offered up a “wide ride” in terms of recent shifts in temperature trends.

The American dataset “went tons colder at midday yesterday only to completely erase all of that change overnight,” the forecaster said. “It is very difficult to trust any model that jumps around” by 20-30 gas-weighted degree days over a 12-hour period. On the other hand, the European model “has been much more stable and remains warmer, also hinting at what would be a warmer 16-20 day pattern as well, thanks to a trough over Alaska” and the absence of any North Atlantic Oscillation blocking.

Bespoke said its expectations lean toward the European outlook, “but we would not be surprised to see models continue to jump around. We do still favor risks for cold to return late month, but if our forecast path is correct, we have a fair amount of milder weather first.”


EBW Weather Outlook

“Demand losses from both the American and European models set the stage for futures to pull back early Wednesday, and prices could slide further later this week,” according to analysts at EBW Analytics Group.

“Longer term, though, there are signs of a major stratospheric warming event,” the EBW analysts said. “This could lead to a return of colder weather in late December, preventing natural gas from falling below last week’s lows.”

Daily Forecast

Unless there is a shift in the forecast this afternoon, prices are likely to remain under pressure. Furthermore, investors may not want to take a big position ahead of Thursday’s U.S. Energy Information Administration (EIA) weekly storage report.

Look for $2.390 to act like a pivot today.

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