Natural Gas Price Fundamental Daily Forecast – Strengthens Over $3.203, Weakens Under $3.185

Natural gas futures gapped higher early Monday in reaction to a possible cooling trend this week. However, we’re going to reserve judgment on the strength of the move until we see how traders react to a key short-term retracement zone. We’re not sure if today’s price action is being fueled by technical factors or fundamental factors.

It could represent the start of another leg higher, or it could be price action designed to “shake the tree” a little and drive out the remaining long traders.

At 0624 GMT, November Natural Gas futures settled at $3.188, up $0.045 or +1.43%.

To recap last week’s events, natural gas futures settled higher, highlighted by a volatile two-sided trade. Early in the week, the market soared to multi-month highs as concerns over power-plant maintenance and pipeline issues encouraged short-sellers to cover aggressively. Strong speculative buying also drove the price action.

Professionals seemed to be caught off-guard by the move since prices were expected to settle into a sideways-to-lower trade ahead of the start of heating season in November. The market is particularly sensitive to issues regarding supply at this time due to a widely expected storage deficit this winter.

After spiking higher into mid-week, prices retreated on Thursday, following the release of a bearish government storage report. Speculative buyers also booked profits and short-sellers re-emerged on the hopes that a change in the weather pattern and record production would drive prices lower.

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

The EIA reported a 98 Bcf storage build for the week-ending September 28. This came within the estimates, but was as much as 20 Bcf above some forecasts.

With the 98 Bcf build, inventories grew to 2866 Bcf, 636 Bcf below year-ago levels and 607 Bcf below the five-year average. Broken down by region, the EIA reported a 36 Bcf injection in the Midwest, a 34 Bcf build in the East and a 22 build in the South Central.

Forecast

The weather this week is largely expected to control the price action. According to the latest reports, the East is expected to be warm which should lead to a decline in power burns, but the Northern and West Regions are expected to be cooler-than-average. This is essentially off-setting news.

The first main range is $2.963 to $3.261. Its retracement zone is $3.112 to $3.077. This zone was successfully tested on Friday when prices fell to $3.109.

The new short-term range is $3.261 to $3.109. Its 50% to 61.8% retracement zone is $3.185 to $3.203. This zone is currently being tested. Trader reaction to this zone will determine the direction of the market today.

Look for a downside bias to develop on a sustained move under $3.185 and watch for the upside bias to continue on a sustained move over $3.203.