Natural Gas Price Fundamental Daily Forecast – Oversold, but Buyers Need Help from Weather

Natural gas futures are trading higher early Monday after posting a 5.62% loss last week on concerns over lower demand. Short-covering and profit-taking are probably behind the rally since there wasn’t any bullish news over the week-end.

At 0912 GMT, February Natural Gas futures are trading $2.686, up $0.051 or +1.94%.

Expectations of low demand due to improving weather conditions have been the primary price driver lately. The National Weather Service projected temperatures would be slightly higher than normal in December, January and February across much of the United States, but lower than the previous two winters (2015-2016 and 2016-2017), which were among the warmest on record.

Traders are also saying that there is more than enough gas available this winter with production at record highs. U.S. dry gas output hit a monthly record high of 77.1 billion cubic feet per day in November, topping the previous monthly high of 75.4 bcfd in October, according to U.S. Energy Information Administration data.

In other news, speculators in four major New York Mercantile Exchange (NYMEX) and Intercontinental Exchange (ICE) markets reduced their bullish bets by 63,275 contracts to 58,289 in the week to December 12, the U.S. Commodity Futures Trading Commission said on Friday.

That was the first time speculators cut their net long positions for four weeks in a row since June. It was also the biggest weekly cut in speculative net longs since June 2017.

The five-year (2012-2016) average speculative net long position is around 127,000.

The current price action strongly indicates that traders are not pricing in any chance of a long, lingering cold weather system this winter season. Due to a combination of oversold technical conditions and periodic cold weather blasts, the market is vulnerable to a few dramatic short-covering rallies, but they are likely to be short-term in nature and serve as new opportunities to re-short at better prices.