Natural Gas Price Fundamental Daily Forecast – Oversold Conditions Make Market Ripe for Short-covering Rally

Natural gas futures touched a new low for the year on Thursday but recovered into the close, paring earlier losses. The market still closed lower for the session but the price action may be suggesting bargain-hunters are coming in to support the market. The price action was also influenced by a government report that showed that natural gas supplies in the U.S. declined more than expected last week.

February Natural Gas futures settled at $2.704, down $0.028 or -1.02%.

According to the U.S. Energy Information Administration (EIA), natural gas storage in the U.S. fell by 69 billion cubic feet in the week-ended December8. Analysts were looking for a draw of about 63 bcf.

That compares with a build of 2 bcf in the preceding week and represented a decline of 201 billion from a year earlier and was 27 bcf below the five-year average.

The EIA report also said total natural gas storage stood at 3.626 trillion cubic feet, 5.3% lower than levels at this time a year ago and 0.7% below the five-year average for this time of year.

Forecast

The recent price action suggests that investors have priced in lower demand until at least the end of the year. This move corresponds with the weather forecasts calling for the return of mild temperatures over the next two weeks.

If a support base is being built then we can build a case for a short-covering rally over the near-term. Unless this move correlates with increased demand, it will likely set up the next shorting opportunity.

The weather forecast for the next two weeks seems to have been priced into the market. All the bulls can hope for at this time is a major shift in investor sentiment due to oversold conditions. I’m not sure if the professionals want to continue shorting at current price levels so they may begin to take profits just to drive the weaker shorts out of the market.