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James Hyerczyk
Natural Gas

Natural gas futures are trading flat early Wednesday after drifting lower the previous session. Sellers poked through the previous day’s low, but there wasn’t much of a follow-through to the downside.

The market is currently trading inside a major retracement zone. Trader reaction to this zone is likely to determine the near-term direction of the market so we could see a few days of sideways price action as buyers and sellers try to position themselves ahead of the weather forecasts and Thursday’s U.S. Energy Information Administration weekly storage report.

With traders absorbing this week’s arctic blast, the focus now shifts to the mid-term forecasts that are calling for more seasonal temperatures. Furthermore, despite the cold weather, spot prices have traded mixed.

At 03:31 GMT, January natural gas futures are trading $2.714, down $0.001 or -0.01%.

Short-Term Weather Outlook

According to NatGasWeather for November 12 to November 18, “A frigid Arctic blast continues across much of the U.S. east of the Rockies this morning with lows of -0s to 20s. The cold front will bring rain and snow into the East today, with lows for major Northeast cities dropping into the 10s and 20s the next few nights to aid very strong national demand. A reinforcing cold shot is expected across the Northeast Friday through Sunday.”

“The West will be mostly mild and dry with highs of 50s to 80s, coolest Northwest. Much of the northern, central, southern, and eastern U.S. will warm early next week to near or warmer than normal. Overall, very high demand into the coming weekend.”

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Mid-Term Weather Outlook

“The midday Global Forecast System data on Tuesday added more heating degree days to the 15-day outlook, improving the demand picture for the period starting next week and continuing through November 25,” according to NatGasWeather.

“Overall, the pattern remains plenty cold enough through the coming weekend,” the forecaster said. “…However, the data still isn’t cold enough November 18-25, even after colder trends.” The northern and central portions of the country will still see weather systems during this time frame, “they just will be rather seasonal for this time of year, with only modest cold anomalies.”

U.S. Energy Information Administration Weekly Storage Report (EIA)

Energy Aspects issued a preliminary estimate for a 3 Bcf withdrawal for the week ended November 8.

The Desk’s Early View survey suggests it’s 50/50 whether the market sees one more net weekly injection. Responses to the survey ranged from a withdrawal of 5 Bcf up to an injection of 9 Bcf, with the average of 18 predictions landing on plus 2.6 Bcf for the week-ended November 8.

Daily January Natural Gas

Daily Forecast

The weather forecasts aren’t too complicated to understand. The services are saying it will be cold, but guess what, it’s supposed to be cold at this time of year so hence, the “seasonal” label. In order to get really excited about the weather, the bulls are going to have to see the phrase, “lingering cold pressure dome”. Quick Arctic blasts will not be enough to trigger a breakout to the upside.

Technically, the main range is the formed by the October 11 bottom at $2.52 and the November 5 top at $2.980. Its 50% to 61.8% retracement zone is $2.750 to $2.696. Trader reaction to this zone will determine the near-term direction.

Look for an upside bias to develop on a sustained move over $2.750 and for the downside bias to continue on a sustained move under $2.696.

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