Natural Gas Price Fundamental Daily Forecast – Speculative Rally Could Strengthen on Sustained Move Over $3.161

Natural gas futures rebounded for a second day on Tuesday on a combination of bargain-hunter buying due to relatively cheap prices and strong speculative buying from traders betting on the return of below average temperatures.

January Natural Gas futures closed at $3.128, up 0.111 or +3.68%.

Forecast

Gas prices are trading higher early Wednesday on forecasts for an icy blast in the eastern half of the country December 8 to December 11 after a short period of unusually warm weather.

In addition to the speculative buying, traders should note that short-covering and profit-taking is also taking place. Not everyone believes that this cold front marks the start of winter, but the recent short-sellers are not going to let a profit turn into a loss. They feel that they’ll have another opportunity to re-short the market if the current forecast doesn’t pan out.

They may be basing their trading on a forecast from the U.S. Climate Prediction Center calling for a 50 percent chance of above normal temperatures from December 5 to December 11 while private forecasters are calling for a deep freeze east of the Rockies.

Looking ahead to Thursday’s weekly storage data report, the U.S. Energy Information Administration is expected to show a draw of about 46 billion cubic feet (bcf) in the week-ended November 24.

That compares with a drop of 46 bcf in the preceding week, a fall of 50 bcf a year earlier and a five-year average decline of 47 bcf.

Total natural gas in storage currently stands at 3.726 trillion cubic feet (tcf), according to the EIA. That figure is 319 bcf, or around 7.9%, lower than levels at this time a year ago and 121 bcf, or roughly 3.2%, below the five-year average for this time of year.

The amount of gas in storage is expected to end the April-October injection season at 3.8 tcf due primarily to higher liquefied natural gas shipments abroad. That would fall short of the year-earlier record of 4.0 tcf and the five-year average of 3.9 tcf.

Finally, the daily chart shows that buyers have overshot the objective at $3.112 to $3.161. Early Wednesday, the natural gas market is trading on the bullish side of this zone.

If it can sustain a rally over $3.112 then we could see another challenge of the $3.321 area. This is the level that stopped the rally earlier in the month.

A break back under $3.112 will signal the return of sellers.