Natural Gas Price Fundamental Daily Forecast – Short-Term Cold Snaps Followed by Prolonged Period of Milder Temperatures

Natural gas futures are trading nearly flat on Thursday as investors await the latest storage report from the U.S. Energy Information Administration (EIA) on Friday. At the same time, traders are dealing with weather reports that are indicating short-term cold snaps, followed by milder temperatures. This is helping to hold the market in a range.

At 1010 GMT, January natural gas futures are trading $4.426, down $0.043 or -0.96%.

Essentially, we have a market that is being underpinned by a storage deficit and time. The storage deficit is well documented, while time represents the winter season and cold temperatures that could return at any time. Helping to keep a lid on prices is the absence of a long, lingering cold spell and strong production. The combination of these factors is creating the sideways trade.

As we saw on Wednesday with the rise in prices early in the session, any forecast calling for colder temperatures over the short-term will drive prices higher. However, we also saw that any forecast calling for an extended period of warmer temperatures can push prices right back down. And so goes the weather market.

Forecast

After a short-term cold snap passes, the weather models are calling for an extended warm period beginning in about a week that has the potential to last seven to 10 days. Because of the storage deficit, this may not be enough to break the market sharply lower, but it will be enough to cap any rallies.

According to NatGasWeather.com for the period December 6 to December 12, “Reinforcing cold shots will sweep across the northern US and into the East the next few days where lows will reach the 0s to 20s across the North, with upper 20s to near 40 degrees Fahrenheit over the South and Southeast. Cold air will cover much of the country this weekend, aided by a weather system tracking across Texas and southern US with mostly rain, but locally as snow/ice. Although, the coldest air will impact the Northeast. The West will see a mix of cold and mild, highlighted by weather systems with rain and snow into California & the Southwest. Overall, demand will be high into early next week, then moderate.”

Friday’s EIA report is expected to show a draw of 57 Bcf.

Technically, the short-term retracement zone at $4.431 to $4.557 continues to control the price action. Look for an upside bias to develop on a sustained move over $4.557 and for a downside bias to develop on a sustained move under $4.431.