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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are trading higher on Tuesday, but investors are giving back earlier gains as they continue to assess the latest weather forecasts and demand projections. The latest projections from the National Weather Service (NWS) call for below-average cold temperatures over the near-term. This news helped boost prices on Monday.

At 1200 GMT, December Natural Gas is trading $3.333, up $0.23 or +0.69%.

Prices surged earlier in the session to $3.377, but the rally stalled as the market approached last week’s high at $3.409. That top was put in as investors assessed potential damage from Hurricane Michael.

The new weather pattern investors are watching showed up in the models over the week-end. They show an early-season cold snap for most of the country. The new 11 to 15-day forecast shows a blast of cold hitting the U.S., particularly in the South and in the Midwest.

This report is being called a surprise because earlier forecasts called for warmer temperatures into December then for cold to arrive in January and primarily in February. During October, cooling and heating demand is usually equally balanced. However, this month started with near-record heat then temperatures flipped to cold.

Forecast

With natural gas storage at low levels as we near the start of the winter heating season, prices are expected to remain firm. The amount of natural gas in storage is below the five-year historical range. At 2,956 billion cubic feet, as of October 5, it was slightly higher than the week before but still well below the five-year historical range.

The long-term plan is to get long and stay long throughout the winter, however, there are going to be short-term swings due to changing weather patterns and strong production. In other words, don’t expect a prolonged rally unless there is a lingering cold spell. Furthermore, professionals prefer to buy dips. Speculators tend to chase the market higher.

Despite the potentially bullish weather pattern, the direction of the December Natural Gas futures today is likely to be determined by trader reaction to the 50% level at $3.306.

A sustained move over $3.306 will indicate the presence of buyers. This will put the market in a position to challenge $3.409 over the near-term. If $3.306 fails as support then prices could retreat into at least $3.202 to $3.161 over the near-term.

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