Natural Gas Price Fundamental Daily Forecast – Weather Outlook as Well as Reaction to $2.698 Sets the Tone

Natural gas futures are trading higher after reversing earlier losses on Friday. The price action suggests bullish investors are still placing bets on extremely cold temperatures at the end of the month despite weather patterns shifting to the milder side. Support is also being provided by yesterday’s bullish government storage report and rising U.S. liquefied natural gas (LNG) volumes.

At 13:16 GMT, March natural gas futures are trading $2.702, up $0.072 or +2.74%.

US Energy Information Administration Weekly Storage Report

The EIA on Thursday reported a withdrawal of 134 Bcf from natural gas storage for the week-ended January 8. The report was bullish because the withdrawal exceeded pre-report estimates of 129 Bcf.

Ahead of the report, Natural Gas Intelligence (NGI) said a Bloomberg survey found estimates ranging from withdrawals of 120 Bcf to 141 Bcf, with a median of a 129 Bcf decrease. NGI modeled 130 Bcf withdrawal for this week’s report, which covers the week-ending January 8. Energy Aspects predicts a 128 Bcf withdrawal.

A year ago, the EIA recorded a 91 Bcf withdrawal for the comparable year-ago period, while the five-year average withdrawal is 161 Bcf, according to the agency.

Short-Term Weather Outlook

According to NatGasWeather for January 14-20, “Most of the U.S. will be mild and dry the next few days with highs of 30s to 50s across the northern U.S. and 50s to 70s across the southern U.S. for light national demand.

A weather system will extend from the Great Lakes to the Southeast late this week and this weekend for a minor bump in demand, although countered by mild conditions over the rest of the U.S. Frigid air with lows of -10s to 20s will arrive across the Rockies and Northern Plains next week, although warmer versus normal over the South and East with highs of 40s to 70s for light demand.”

Daily Forecast

We expect natural gas to continue to be supported by strong LNG demand, but I don’t think we’ll see a breakout to the upside unless the weather models start to show frigid temperatures in late January.

Expectations of this continue to be mixed however. “The latest GFS still shows cold air eventually reaching the Great Lakes and Northeast January 25-28, but we think this period is also subject to warmer trends in time,” NatGasWeather said.

Technically, trader reaction to $2.698 will determine the short-term direction of the market. A move over $2.698 could drive prices into $2.794 to $2.835. A move under $2.698 will target $2.552 to $2.485.

The longer-term direction of natural gas will be determined by trader reaction to $2.794 to $2.918. The latter is a potential trigger point for an acceleration to the upside.