Natural Gas Price Fundamental Daily Forecast – Strengthens Over $4.431, Weakens Under $4.557

Natural gas is trading lower on Tuesday shortly before the regular session opening. The early weakness has filled in the gap formed on Monday’s opening. The market is currently straddling a short-term technical retracement zone. Trader reaction to this zone should determine the direction of the market the rest of the session.

At 1157 GMT, January Natural Gas is trading $4.481, down $0.231 or -4.90%.

In another potentially bearish development, the Chicago Mercantile Exchange (CME) announced Monday it will raise the speculative margin requirement for natural gas futures. The move is designed to restore order to the market which was rocked by two consecutive days of double-digit volatility last week.

The Fundamentals

Demand

As of the week-ended November 9, U.S. natural gas supplies in storage stood at 3.247 trillion cubic feet, according to the Energy Information Administration. That was about 16% below the five-year average.

Supporting the market was the news that the withdrawal season, which typically runs from November 1 through March 31, had started with supplies in storage more than 600 billion cubic week below normal. This is the lowest level the market has seen relative to the five-year average in the past 22 years. The previously lowest level was 266 Bcf, reached in 2014.

Supply

The strange thing about the current strength in the market is that it comes at a time when U.S. natural gas production is hitting record levels. The latest EIA forecasts that dry natural-gas production will average 83.2 billion cubic feet a day this year, up 8.5 billion cubic feet a day from 2017. “Both the level and growth of natural-gas production in 2018 would establish new records,” according to the EIA.

Short-Term Weather Forecast

NatGasWeather.com for the period November 20-26 says, “A strong cold blast is currently impacting the central and northern U.S. with lows the next few nights of single digits to 20s north, and 20s to 30s into Texas and portions of the South.

This will continue to result in strong demand as lows behind the cold front reach the single digits to 20s north, and 20s to 30s into portions of Texas and the South.

A milder break will set up across much of the country Friday-Saturday before the next weather systems develops over the west-central U.S. this weekend, then advancing eastward. Milder expectations will be across portions of the West & far South.

Overall, demand will be high-very high through Friday.”

Forecast

Traders continue to monitor the timing, intensity and duration of warmer temperatures expected during the upcoming Thanksgiving holiday, as well as forecast trends for the first half of December.

Technically, the main range is $3.199 to $4.964. Its 50% to 61.8% retracement zone at $4.082 to $3.873 is support. This zone stopped the selling on Thursday at $3.898.

The new short-term range is $4.964 to $3.898. Its retracement zone is $4.431 to $4.557. The market gapped this zone early Monday, however, the gap has since been filled. Trader reaction to the retracement zone will determine the direction of the market today.

As far as Wednesday’s EIA report is concerned, traders are looking for a triple-digit pull. If this occurs then look for the storage deficit to widen.

The Desk’s Early View is calling for a 106.1 withdrawal with a median of 109 Bcf. The range of estimates is 78 Bcf to 119 Bcf. The International Exchange EIA financial weekly index futures settled at a withdrawal of 118 Bcf.

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.