Natural Gas Price Fundamental Daily Forecast – Oversold Conditions Contributing to Short-Covering Rally

Short-covering helped drive natural gas futures higher on Thursday. The catalyst behind the rally was this week’s government storage report that showed domestic supplies increased in line with market expectations.

December natural gas futures settled at $2.935, up 0.042 or +1.45%.

According to the U.S. Energy Information Administration, natural gas storage in the U.S. rose by 65 billion cubic feet (bcf) in the week-ended October 27, versus forecasts for a build of 62 billion.

That compared with a gain of 64 bcf in the preceding week, a build of 54 bcf a year earlier and a five-year average rise of 60 bcf.

The EIA report also showed total natural gas in storage currently stands at 3.775 trillion cubic feet (tcf). That figure is 180 bcf or around 4.5%, lower than levels at this time a year ago and 41 bcf, or roughly 1.1%, below the five-year average for this time of year.

Forecast

The short-covering rally came as no surprise. Oversold conditions make the market ripe for a short-term, counter-trend rally. This may be necessary to set up the next shorting opportunity since the recent chart action suggests the market may have exhausted itself to the downside.

If there is a meaningful short-covering rally, it could trade as high as the retracement zone at $3.023 to $3.064. Since the trend is down, a rally into this zone is likely to attract new sellers.

Natural gas demand is expected to be moderate between November 2 and November 8, according to natgasweather.com. “Weather systems with rain and snow will impact the Northwest and north-central U.S. with chilly conditions.”

“The southern and eastern U.S. will become quite warm into early next week with highs of 60s to 80s, requiring light demand.”

“A weather system will track across the northern U.S. during the middle of next week with some cooling across the Great Lakes and Northeast.”