Natural Gas Price Fundamental Daily Forecast – Short- to Mid-Term Weather Outlook Still Favors Bears

Natural gas futures are trading slightly better on Friday after yesterday’s intraday plunge and lower close. Prices retreated on Thursday after an early attempted breakout failed to attract enough buyers to extend the move. Furthermore even yesterday’s larger-than-expected storage withdrawal from the U.S. Energy Information Administration (EIA) failed to shift momentum to the upside. More importantly, traders continue to react to weak prices in the spot market, which are being driven by forecasts calling for mild temperatures.

At 0953 GMT, February natural gas futures are trading $3.562, up $0.036 or +1.02%.

Technical factors are also contributing to the selling pressure and the market’s inability to follow-through on at least three attempts to breakout to the upside this week. The major resistance area is a retracement zone at $3.775 to $3.980.

U.S. Energy Information Administration Storage Report

The EIA on Thursday reported a 141 Bcf withdrawal from U.S. natural gas stocks for the week-ending December 14. That compares to a year-ago withdrawal of 166 Bcf and a five-year average pull of 144 Bcf.

Estimates ahead of the EIA report pointed to a withdrawal in the low to mid-130 Bcf range.

Furthermore, Bloomberg called for a range of 118 Bcf to 146 Bcf with a median draw of 135 Bcf. Reuters looked for a range of 94 Bcf to 153 Bcf with a median of 133 Bcf. Additionally, Kyle Cooper of IAF Advisors and Bespoke Weather Services each estimated a 133 Bcf draw, while EBW predicted a 145 Bcf draw.

Short-Term Weather Outlook

According to NatGasWeather for the period December 21 to December 27, “A strong weather system will bring heavy rain over the East Coast the next few days with snow into the coldest air. Mild conditions will dominate most of the rest of the country with highs of 40s and 50s north and 60s to locally 70s elsewhere. There will be a brief cold shot across the Midwest and East next week, focused around Christmas Eve for locally stronger demand otherwise mild. The West will see weather systems with valley rains & mountain snows. Overall, national demand will be lighter than normal due to not enough cold air. Overall, national demand will be low.”

Forecast

The short-term weather models remain unchanged with some adding several heating degree days over the nine- to 15-day period, “but still not cold enough to be considered bullish,” NatGasWeather said.

The firm is also saying that it expects light demand over the next 10 days, then temperatures may move toward normal/neutral December 30 – January 2 as cold begins to spread from the West.

Weather Decision Technologies said “there was the potential for a colder shift for the first half of January.”

Traders may be trying to establish a value zone, while forming a support base that may be necessary to trigger the next meaningful rally. This zone is $3.433 to $3.821. Its 50% level or pivot at $3.627 may be controlling the short-term direction of the market.

The longer-term retracement zone at $3.775 to $3.980 is the most important area for bullish traders to overcome. Overtaking and sustaining a rally over $3.775 will indicate the short-covering is getting stronger. Taking out this week’s high at $3.821 could trigger an acceleration to the upside with the 50% level at $3.980 the next target level. This is a potential trigger point for a strong move.

Shorter-term, prices will continue to drift sideways to lower under $3.627. Longer-term, a sustained move under $3.775 will indicate that strong sellers are blocking buyers.