Natural Gas Price Fundamental Daily Forecast – Warming Trend by Week-end then Cold Returns

Natural gas futures are trading lower on Wednesday after failing to follow-through to the upside following Tuesday’s technical reversal bottom. Yesterday’s price action indicates that speculative buyers may be willing to defend the last two bottoms at $2.809 and $2.771. However, today’s early price action suggests that sellers are still in control.

At 10:51 GMT, March natural gas futures are trading at $2.864, down $0.039 or -1.34%.

We weren’t really surprised by yesterday’s buying and won’t be if there is a follow-through rally today. This is because over the next 48 hours parts of the Midwest will be experiencing record low temperatures. So we could see increased spot market demand. However, the forecasts are calling for warmer temperatures to follow and this news is likely to control the price action the rest of the week. Cold is on the way, however, after the week-end.

The expiration of the February futures contract may have also contributed to the short-covering rally on Tuesday.

Short-Term Weather Outlook

According to NatGasWeather for January 30 to February 4, “A dangerous polar blast continues to impact the Midwest with frigid temperatures of -40F to -20sF, with -20s to 0s across the Ohio Valley and Northeast, and 20s and 30s into the South and Southeast. There will be scattered snows across the Great Lakes and Northeast while a wintry mix exits the South/Southeast. The polar blast will exit Friday with strong warming to follow this weekend into next week across the South & East. The West will be mild across coastal states with increasing showers, while colder into the Mountain West. Overall, national demand will be very high Wednesday to Friday, easing to moderate to low this week-end.

Forecast

We’re going to be watching trader reaction to another test of the low zone between $2.802 and $2.771. This is because sellers have been willing to sell rallies, but reluctant to short weakness. This is probably because the warming expected into this week-end is expected to be short-lived.

Bespoke Weather Services is calling the warming spell “generally limited”.

“Afternoon model guidance showed a quicker transition colder primarily “from days eight through 12 of the outlook period, Bespoke said.

We could be looking at a short-term rangebound trade because shorting at current price levels carries too much risk, while buying ahead of the new forecast for cold may be pre-mature.