Natural gas futures are bouncing back early Friday after a steep sell-off the previous session. Today’s early price action indicates that technical analysis factors may be helping to fuel the price recovery after yesterday’s government storage data fell less than forecast last week.
At 1000 GMT, January Natural Gas futures are trading $3.102, up $0.077 or +2.55%.
According to the U.S. Energy Information Administration, natural gas storage in the U.S. fell by 33 billion cubic feet (bcf) in the week-ended November 24, compared to forecasts for a withdrawal of 37 bcf.
That compared with a drop of 46 bcf in the preceding week, a fall of 50 bcf a year earlier and a five-year average decline of 47 bcf.
Total natural gas in storage currently stands at 3.693 trillion cubic feet (tcf), according to the EIA. That figure is 309 bcf, or around 7.7%, lower than levels at this time a year ago and 107 bcf, or roughly 2.8%, below the five-year average for this time of year.
Forecast
The price action has been volatile this week, but for the most part, prices have adhered to a pair of key technical retracement areas, first finding resistance early in the week then finding support on Thursday.
The main range is $3.321 to $2.903. Its retracement zone at $3.112 to $3.161 provided resistance.
The short-term range is $2.903 to $3.218. Its retracement zone at $3.061 to $3.023 provided support.
Currently, the market is trading between a pair of 50% levels at $3.061 and $3.112. Trader reaction to these levels could determine the direction of the natural gas market today.
Holding above $3.061 is helping to give the market an upside bias. Overcoming and sustaining a rally over $3.112 will indicate the buying is getting stronger.
Traders are now expected to shift their focus back to the weather forecast.
According to NatGasWeather.com from December 1 to December 6, “The northern U.S. will be mostly mild for this time of the year with highs in the upper 30s to lower 50s, even as a weather system races across the Great Lakes and Northeast the next couple days with rain and snow showers. The central and southern U.S. will be mild to warm with highs of 50s to 70s.”
“The West will be mild until a cold weather system arrives this weekend, with cold air then spreading across the rest of the country next week.”
“Overall, demand will be low through Monday, then rapidly increasing to high.
Traders aren’t paying too much attention to the short-term forecast but to the forecast a week or two out. Once again, the strength of any rally is going to be determined by whether the weather is a “cold blast” or a “lingering cold front”.
A cold blast could be supportive for prices, but any rally is likely to be short-lived. A lingering cold front will be supportive for prices and likely lead to a longer rally.
Trader reaction to $3.112 and $3.061 will tell us what they are thinking. A bullish tone could develop on a sustained move over $3.112. A bearish tone could develop on a sustained move under $3.061.