Natural Gas Price Fundamental Daily Forecast – Weakens Under $2.929, Strengthens Over $3.014; Neutral Between

Natural gas futures are edging lower on Friday as warm temperatures continue to drive out the bulls, while becoming increasingly attractive to short-sellers. Last week, the Commodity Futures Trading Commission (CFTC) reported record long positions. This week’s surprise shift in the weather toward warmer temperatures appears to be driving many of the weaker longs to the sidelines or to the short-side.

At 14:21 GMT, December natural gas futures are trading $2.926, down $0.016 or -0.54%.

Weather Remains the Major Concern

Natural Gas Intelligence (NGI) said that based on the latest guidance, Bespoke Weather Services reduced its projected gas-weighted degree day totals for the 15-day outlook early Friday, rounding out a full week of consecutive warmer revisions to the firm’s forecast.

“It still appears likely that warmer than normal weather will roll into the final third of November as well,” Bespoke said.

Movement in the major models was mixed overnight, with the American dataset shifting warmer but the European model moving slightly colder in the medium range, according to the firm.

“Both showed some marginal warming in the near-term, which is why we went with a net warmer shift, as this pattern is one that suggests that models will not be warm enough in the medium range,” Bespoke said.

US Energy Information Administration Weekly Storage Report

Thursday’s EIA weekly storage report was a bullish surprise. The reported drawdown, the first of the season, came in larger than expected and about two-weeks ahead of schedule. The reasons for the drawdown were Hurricane Zeta-related production shutdowns and increased LNG feed gas demand. A cold blast across the Midwest also contributed to solid overall demand.

The EIA said domestic supplies of natural gas fell by 36 billion cubic feet (Bcf) for the week-ended October 30, marking the first inventory withdrawal of the heating season.

Working gas in storage was 3,919 Bcf as of Friday, October 30, according to EIA estimates. Stocks were 200 Bcf higher than last year at this time and 201 Bcf above the five-year average of 3,718 Bcf. At 3,919 Bcf, total working gas is within the five-year historical range.

NGI predicted a withdrawal of about 28 Bcf. A Bloomberg survey found estimates ranging from a pull of 22 Bcf to 38 Bcf, with a median 31 Bcf decrease. A Reuters poll found estimates ranging from a withdrawal of 10 Bcf to 38 Bcf and a median decrease of 27 Bcf.

Daily Forecast

The inability to rally the market on the bullish EIA report and today’s follow-through weakness indicates that traders are weighting the warm forecast more heavily than evidence of tightening balances.

The supply/demand balances still look tight, but the market is going to have a hard time rallying until the weather neutralizes. Until then, even with tight balances and rising LNG demand, the market could be in a “sell the rally” mode.

Trader reaction to a technical retracement zone at $3.014 to $2.929 will determine the near-term trend.

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