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Natural Gas Price Fundamental Daily Forecast – Triple-Digit Draw Estimate, Cold Weather Forecasts Underpinning Prices

By:
James Hyerczyk
Published: Nov 21, 2018, 11:12 UTC

Pre-report estimates are calling for a triple-digit withdrawal for the week-ended November 16. The range guesses are minus 92 Bcf to minus 121 Bcf. Last year, the EIA reported a 42 Bcf withdrawal for the same period. The five-year average for this time of year is a withdrawal of 25 Bcf.

Natural Gas Price Fundamental Daily Forecast – Triple-Digit Draw Estimate, Cold Weather Forecasts Underpinning Prices

Natural gas futures are trading higher Wednesday and in a position to challenge last week’s spike top at $4.964. The catalysts behind the early strength are expectations of a triple-digit withdrawal from storage and the return of cold weather after a slight reprieve this week-end. Traders are also anticipating heightened volatility following the release of a major government storage report later today.

At 1038 GMT, January Natural Gas is trading $4.758, up $0.237 or +5.24%.

On Tuesday, natural gas futures posted a choppy, two-sided trade as volatility in the cash market failed to offer direction to traders. “In the spot market, locations throughout the Northeast and in the West posted big gains as prices were mixed through the middle third of the country; the Natural Gas Intelligence Spot Gas National Average added 35.0 cents to $5.290/MMBtu.”

Natural Gas
Daily January Natural Gas

Weather Outlook

The focus throughout the session remained on the weather models. The current models are maintaining long-range cold risks which is helping to underpin prices.

According to Bespoke Weather Services, “…prices rocketed higher (Tuesday) into the settle as European model guidance kept significant long-range cold risks.”

“European guidance was not nearly cold enough compared to its overnight run to justify the move into the settle, but rather prices were just clearly not supposed to be below $4.40 and especially $4.30 with the long-range cold risks still on models,” according to Bespoke.

They went on to say that, “With crude continuing to get hit we may see some selling in lower liquidity periods, but we still see the bias as being a bit higher if anything given long-range cold risks” and expectations for a ‘very bullish’ Energy Information Administration (EIA) storage report Wednesday.”

U.S. Energy Information Administration Report Estimates

Pre-report estimates are calling for a triple-digit withdrawal for the week-ended November 16. The range guesses are minus 92 Bcf to minus 121 Bcf. Last year, the EIA reported a 42 Bcf withdrawal for the same period. The five-year average for this time of year is a withdrawal of 25 Bcf. So if you do the math, today’s withdrawal is expected to come in at nearly 4 times the five-year average. That’s very bullish if you’re keeping score at home.

A survey from Bloomberg points to a range of 99 Bcf to 120 Bcf, with a median of 108 Bcf. A Reuters survey of traders and analysts predicts a range of 92 Bcf to 121 Bcf, with a median of 109 Bcf.

The Intercontinental Exchange (ICE) EIA financial weekly index futures contract settled Monday at a withdrawal of 114 Bcf. Kyle Cooper of IAF Advisors called for a 120 Bcf withdrawal.

Forecast

A triple-digit withdrawal will be major news since it’s still only November and the winter heating season is just getting started. Furthermore, it will significantly widen the year-on-year and five-year storage deficits. This could pose problems later in the winter season if the cold blasts continue.

The longer-term weather models are indicating the return of frigid temperatures throughout most of the country after the week-end.

Short-term, physical prices are expected to continue to strengthen in the Northeast United States with forecasters calling for the region to experience a frigid Thanksgiving holiday.

Weather.com is predicting that another blast of cold air will bring one of the coldest Thanksgivings on record for some Northeast cities. They blame it on a strong area of high pressure originating from the Arctic Circle, which is now sweeping into the Northeast. This is expected to send temperatures plummeting toward levels you might expect on New Year’s Day, not Thanksgiving Day.

The layout is bullish, but we still have to deal with excessive volatility so be prepared for the possibility of two-sided price swings. Bullish news could take out last week’s high, but we may not see the same type of follow-through rally since the CME raised margins last Monday to curb excessive speculation.

Volatility works both ways so a EIA miss could drive prices lower, however, I don’t expect prices to fall to far because of the weather.

It would have to take a weak EIA report and a change in the weather to mild next week to drive prices sharply lower.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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