Natural Gas Price Fundamental Daily Forecast – Too Many Longs, Bearish Weather Shift Driving Out Weak Bulls

Natural gas futures are down sharply for a second session as bearish intermediate (11-15 day) weather forecasts outweighed continued strong liquefied natural gas (LNG) export levels.

Additionally, production continued to claw back following the shutdowns caused by Hurricane Zeta about a week ago. The Category 2 storm made landfall on October 28 southwest of New Orleans. About 45% of natural gas produced in the Gulf of Mexico was taken offline ahead of the storm. By midday Monday, that figure had declined to 16%, the Bureau of Safety and Environmental Enforcement said.

At 13:55, December natural gas is trading $3.125, down $0.119 or -3.67%.

Intermediate Term (11-15 Day) Weather Outlook

Bespoke Weather Services said warmer revisions to both the domestic and European forecasts for the first half of November, “and hints that a warmer regime can roll on into the second half of the month,” minimized the demand outlook and put downward pressure on futures Monday. The firm said both the American and European models early Monday had lost 10-12 gas-weighted degree days (GWDD) from earlier weekend forecasts, turning “decidedly bearish.”

The change “raises concerns that warmth will continue into the back half of November, noteworthy since the first half of the month is already about 50 GWDD warmer than the first half of the last two Novembers,” the firm said. “Such a scenario would at least give us a shot at a Top 5 or 6 warm November.”

The new outlook, Bespoke added, “will lend itself to more downside risks in prices at the front of the curve.”

EBW Analytics Group said that the new expectations for comfortable temperatures through much of November – and therefore lighter heating demand in northern states and weaker cooling demand in the nation’s southern reaches – marked a sharp reversal after finishing the prior week on a high note amid ongoing LNG advances.

“As of Sunday, natural gas appeared poised for further gains, supported by a surge in LNG feed gas flows, which topped 10 Bcf/d for the first time” in 2020 over the weekend, EBW said.

Daily Forecast

The shift in the intermediate weather forecasts caught weaker long traders by surprise, encouraging them to head for the exits in a big way this week. We now have to wait for the next government report to tell us if the hedge funds loosed their record long positions.

At the end of last week, natural gas was supported by a surge in LNG feed gas flows. That factor is still bullish. Problems arose when the November weather forecast changed to bearish.

Furthermore, it now looks as if the record long positions in natural gas may have created an overbought situation. The bulls basically stopped buying because there were no sellers left in the market. This encouraged traders to take profits and trim their long positions.