Natural Gas Price Fundamental Daily Forecast – Was the Gap Higher Fueled by Weather or Contract Rollover?

Natural gas futures gapped and rallied shortly after the opening on Monday before giving back about half of its earlier gains. The price action was likely fueled by position-squaring ahead of tomorrow’s settlement of the November futures contract. The gap may have also been triggered by a rollover into the December contract.

At 09:01 GMT, December natural gas futures are trading $2.527, up $0.068 or +2.77%.

At this time, we don’t think the move is related to a change in the weather forecast although we reserve judgment until the release of the updated forecasts later today. Into the weekend, traders were expecting prices to remain capped due to ample supply and robust production so today’s early price action definitely caught the weaker short-sellers by surprise.

Short-Term Weather Outlook

According to NatGasWeather for October 28 to November 3, “Warm high pressure will strengthen over the eastern 1/3 of the US the next several days with highs of 60s to 80s, warmest across the Southeast. At the same time, a frigid cold shot will push into the western and central U.S. with lows of single digits to 30s. This cold shot will gradually spread into Texas and the South Tuesday, then finally reach the east late in the week although not as cold upon arrival. A reinforcing cold shot will follow across the northern US next weekend. Overall, quite strong national demand over the coming week.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 87 billion cubic feet for the week-ended October 18. That matched some estimates, but came in below the average build of 92 billion cubic feet expected by analysts polled by S&P Global Platts.

Total stocks now stand at 3.606 trillion cubic feet, up 519 billion cubic feet from a year ago and 28 billion cubic feet above the five-year average, the government said.

Daily Forecast

Here’s what we know ahead of the regular session opening. Cold weather is coming which should lead to increased national demand. However, this week’s drop in temperatures has been priced into the market for weeks.

Late Friday, the forecasts started to show a shift toward warmer temperatures in early November, sooner than expected. This led to weaker prices on Friday, ahead of the weekend. Nonetheless, we didn’t see really strong selling ahead of the weekend, which is understandable because there is cold air currently sitting at the Canadian border that could creep into the U.S. at any time.

So what happened over the week-end to gap prices higher early Monday?  It may have been technical factors with traders getting tired of the rangebound trade and taking a shot at the upside just to spook out a few of the weaker shorts.

The rollover and position-squaring ahead of the November contract settlement on October 29 may have been behind the move. If the weather forecast changed then the guys who pay big money for advanced forecasts jumped in early. The rest of us have to wait until the new midday forecasts are announced.

Technically, there wasn’t much damage done on the charts. The short-term range remains $2.568 to $2.388 and so does the pivot at $2.478. But instead of being resistance, the pivot could now become support.

Holding above $2.478 will indicate the presence of buyers. Taking out $2.564 and $2.568 will indicate the buying is getting stronger. This could trigger an acceleration into the main 50% to 61.8% level at $2.636 to $2.695.