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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are trading lower Tuesday, erasing all of its earlier gains. On Monday, prices trended lower most of the session until a late session short-covering rally drove it well above its intraday lows. Nonetheless, it still closed lower for the session.

The early weakness was fueled by a warmer-than-average U.S. weather outlook. The volatile two-sided trade was triggered by position-squaring related to the expiration of the front-month futures contract.

At 0853 GMT, December Natural Gas futures are trading $3.177, down $0.021 or -0.66%.

Monday’s price action was not a surprise. This typically happens when you have a weather market combined with the expiration of a futures contract. After trading the November futures contract under the influence of both colder-than-average weather conditions and storage concerns, the price action in the December futures contract is widely expected to be a weather market.

Since the month of November is expected to begin with warmer conditions, the December futures contract could begin the month under pressure.

In other news, on the supply side, U.S. dry gas production continued to gain momentum, averaging 85.1 Bcf/d through the weekend, according to S&P Global Platts Analytics. Much of the gains came from the Northeast and the Southeast region. Output is set to stand at 85 Bcf Monday, down 100 MMcf day on day.

Over the next two weeks, production is projected to average 85 Bcf/d, putting a downward pressure on prices despite the huge storage deficit. Currently, national gas stocks sit at 3.095 Tcf, 16% lower than the five-year average of 3.719 Tcf, according to the U.S. Energy Information Administration.


The current weather forecast is calling for milder temperatures until November 12-13. After that, colder temperatures are expected to arrive. Prices could be under pressure until then because traders are still unsure about the weather pattern.

The daily chart is offering some clues as to where investors are likely to find value. The main range is $2.840 to $3.409. Its 50% to 61.8% zone, a common support area, comes in at $3.125 to $3.057. We’re going to be looking for buyers to show up on a test of this zone.

If the forecast calls for colder temperatures after November 13 then natural gas is likely to pick up strength over $3.125.

If the forecast call for warmer temperatures over an extended period of time then sellers are likely to drive prices through $3.057.

Trading inside $3.057 to $3.125 will signal trader indecision.

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