Natural Gas Price Fundamental Daily Forecast – Traders Bracing for Heightened Volatility

Natural gas futures are edging higher early Wednesday, reaching their highest level since December 13, in what is likely a weather-related move. The price action suggests there’s been a slightly bullish tweak in the overnight forecasts. But it looks like it’s enough to scare a few of the weaker shorts out of the market.

The potential change in the forecast overnight now puts greater emphasis on the midday outlook that could make or break this market ahead of the New Year holiday weekend. Keep in mind, however, that the volume is thin so prices can be manipulated while swinging on both sides throughout the day.

At 12:06 GMT, March natural gas futures are trading $3.861, up $0.119 or +3.18%.

Changes in the forecast, thin volume are just two of the reasons why we could see heightened volatility on Wednesday. Another is today’s futures expiration for the January natural gas contract.

Short-Term Weather Outlook

According to NatGasWeather for December 29-January 4, “National demand will remain light through Saturday as high pressure rules the southern, and eastern U.S. with highs of 50s to 80s. Demand will be strong across the West and Midwest as weather systems track through with rain, snow, and frosty lows of -10s to 30s, highs of 0s-40s.

National demand will increase this weekend as cold air over the Midwest spreads down the Plains into Northern Texas and across the Ohio Valley and Northeast.

Overall, low national demand through Saturday, then high late this weekend.”

Technical Outlook

After consolidating in a tight range for nearly the whole month of December and surviving an attempt to break sharply lower last week, March natural gas futures now appear to be ready to test the resistance.

The trend will change to up on a move through $3.941, but we think $3.964 is the trigger point for an acceleration to the upside. A successful technical breakout combined with cold weather could trigger a breakout into $4.378.

Daily Outlook

Look for volatility due to the January futures contract expiration.

Additionally, look for a potential breakout to the upside if the midday forecasts show increased confidence in a cold short January 7-9 or January 9-12.

A cold shot by nature is extremely short-term. In order to develop a sustainable rally, we’re going to need to see a lingering cold front or a Polar Vortex formation, but they aren’t even being mentioned in the forecasts.