Natural Gas Price Fundamental Daily Forecast – Price Action Suggests Short-Covering Rally Has Peaked

Natural gas futures are trading lower on Friday amid renewed selling pressure as the market approached a key technical retracement level. Earlier in the session, the market was underpinned by yesterday’s slightly bullish U.S. storage report, which showed a larger-than-expected draw. Short-term traders are likely booking profits ahead of next week’s warm spell, however, longer-term traders may be betting on the return of extremely cold temperatures next week-end.

At 13:43 GMT, April natural gas is trading $2.713, down $0.011 or -0.40%.

U.S. Energy Information Administration

On Thursday, the U.S. Energy Information Administration announced a 177 Bcf withdrawal for the week-ended February 15. This was more than 164 Bcf forecast.

Stocks are now at 1,705, sitting 362 Bcf lower than the five-year average of 2,067 Bcf. Inventories at this time last year stood about 4% higher than current levels at 1,778 Bcf, according to the EIA.

Short-Term Demand Outlook

U.S. demand is expected to decline this week-end, falling by about 4.6 Bcf from Wednesday to 111.6 Bcf. This drop-off is being driven by continued weakening residential and commercial demand as the end of winter approaches, falling about 4 Bcf per day. Additionally, power burn demand is projected to decrease about 1.2 Bcf on the day to 29.9 Bcf.

Short-Term Weather Outlook

According to NatGasWeather for February 22 to March 1, “Conditions will warm across the Ohio Valley and Northeast through the weekend with highs into the 40s and 50s but also with rain and snow along a frontal boundary between cold central U.S. air and warmer East air. The West will be cool to cold as weather systems track through. Mild high pressure will dominate the South & Mid-Atlantic Coast with highs of 60s to 80s. A quick cold shot across the Midwest to Northeast Monday will give a minor jump in demand before warming mid-next week. Strong cold shots will sweep across the northern and central U.S. late next week. Overall, national demand will be moderate the next 7-days.”

Daily Forecast

At this time, bearish traders are hoping for a pullback into the $2.55 level, while bullish traders would like to see a challenge of a technical retracement zone at $2.749 to $2.792. This zone will likely be resistance. One can’t really get excited about the upside potential of this market unless the April futures contract settles convincingly above $2.792.

The main range is $2.932 to $2.565. Its retracement zone resistance is $2.749 to $2.792.

The short-term range is $2.565 to $2.746. If there is a pullback, the first target will be a 50% level at $2.656. Momentum will shift back to the downside if this level fails with targets coming in at $2.589 and $2.565.

Looking ahead to next week’s EIA storage report, early expectations are for a draw of 170 Bcf to 180 Bcf.