Natural Gas Price Fundamental Daily Forecast – Ripe for Near-Term Short-Covering Rally with $2.696 First Target

Natural gas futures are trading higher on Friday after the government reported a larger-than-expected drop in inventories to kick-off the withdrawal season on Thursday.

The market has been trading sideways most of the week after hitting its lowest level since October 25 at $2.570 on Tuesday. This suggests a market engaged in a “search for equilibrium,” according to Powerhouse Vice President David Thompson. The forecast has shifted colder this week but “by no means has it returned to a much colder-than-expected outlook,” leaving the market without a clear signal.

“The fact that the storage number didn’t cause a more sustained reaction than this sort of tells you this is a market that, at the moment is not ready to make a big move,” Thompson told Natural Gas Intelligence (NGI).

At 13:34 GMT, January natural gas is trading $2.647, up $0.025 or +0.95%.

US Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported that domestic supplies of natural gas fell by 94 billion cubic feet for the week ended November 8. That number marked the first decline of the inventory withdrawal season. Analysts were looking for a draw of about 86 Bcf.

The 94 Bcf figure comes in well above the five-year average pull of 32 Bcf, but shy of the 109 Bcf withdrawal the EIA recorded for the year-ago period.

Bloomberg analysts were looking for a median prediction of 88 Bcf, with estimated withdrawals ranging from 82 Bcf to 99 Bcf. The ICE EIA Financial Weekly Index futures settled Tuesday at minus 87 Bcf. Natural Gas Intelligence (NGI) predicted a 101 Bcf withdrawal.

Total stocks now stand at 3.638 trillion cubic feet, up 506 billion cubic feet from a year ago, but 60 billion cubic feet below the five-year average.

Short-Term Weather Forecast

According to NatGasWeather for November 22 – 28, “One weather system will track into the Northeast today, while a second system tracks into Texas and the South. However, these systems won’t bring much added demand since they are only slightly cool for this time of year with highs of upper 30s to 50s. The rest of the U.S. will be mild with highs of 50s to 70s. The Texas system will track into the east-central and eastern U.S. Saturday. High pressure will bring warmer conditions over the eastern half of the country early next week as cold air pours into the West. Overall, moderate demand.”

Daily Forecast

The fundamentals are bearish, but we do realize that markets can become technically oversold especially when approaching major support areas, so we’re not going to be surprised if we see a near-term short-covering rally.

The first upside target is $2.696, followed by $2.750. A trade through $2.785 will change the trend to up.