Natural Gas Price Fundamental Weekly Forecast – 10-14 Day Forecast Drives the Volatility; Sets the Weekly Tone

Natural gas traders will be watching the opening on Monday with great interest especially after last week’s gap lower opening. Of particular interest will be how traders react to the filling of the gap on Friday.

The market actually closed on Friday slightly above its finish on December 24 which started it all. The long-holiday weekend and new updates to the 10 to 14 day forecasts will be the catalysts that likely trigger a gap higher opening or another gap lower start.

Last week, February natural gas futures settled at $2.539, up $0.027 or +1.07%. The low of the week was $2.263.

Technical factors will also play a role in the price action, given the formation of a potentially bullish closing price reversal bottom on the weekly chart.

Taking out last week’s high at $2.547 will confirm the chart pattern. This could launch the start of a 2 to 3 week rally if the buying volume is strong. We’re likely to see a shorter-term rally if the move is fueled by mostly short-covering. The best scenario for the bulls will be a combination of aggressive speculative buying and short-covering.

If there is no follow-through to the upside and the market gaps lower again then look for a retest of last week’s low at $2.263. We could even see the selling extend beyond the low, but just like last week, shorting weakness will be a dangerous proposition.

US Energy Information Administration Weekly Storage Report

Thursday’s EIA weekly storage report surprised to the downside for the second week in a row. The government report showed a much smaller-than-expected 114 Bcf withdrawal from stocks for the week-ending December 25.

Ahead of the report, Natural Gas Intelligence (NGI) wrote, a Bloomberg survey of nine analysts showed an unusually wide range of withdrawal estimates from as low as 88 Bcf to as large as 150 Bcf, with a median of 126 Bcf.

A Wall Street Journal poll showed estimates within that same range, with an average of 129 Bcf. A Reuters poll of 16 market participants showed withdrawals as low as 85 Bcf, but the median was near those of other surveys, at 125 Bcf. NGI pegged the pull at 124 Bcf.

Last year, the EIA recorded an 87 Bcf draw for the similar week, while the five-year average is a 102 Bcf draw.

Total working gas in storage fell to 3,460 Bcf, which is still 251 Bcf above year-ago levels and 206 Bcf above the five-year average.

Weekly Forecast

The charts indicate the short-term direction of the February natural gas market this week will be determined by trader reaction to a 50% to 61.8% retracement zone at $2.519 to $2.579.

Look for an upside bias on a sustained move over $2.579, which could put a recent top at $2.775 back on the radar, but the downside bias will resume on a sustained move under $2.519.

Ahead of the weekend, NatGasWeather said the first half of January could be “quite bearish” with some areas in the Midwest and East seeing temperatures reach levels that are 10-25 degrees warmer than normal.

Nonetheless, the report was only worrisome enough to stop the rally. It did not lead to renewed selling pressure. Traders were likely willing to wait for the weekend reports before making their next trading decision.

Remember that professional traders are looking at forecasts 10-14 days out.