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Natural Gas Price Fundamental Weekly Forecast – Bulls Running Out of Time for Winter Cold to Arrive

The market starts the new week bearish. Although we could see bargain-hunters step in to slow down the price slide, we’re running out of time for a meaningful winter rally. There’s always the possibility that the models shift back toward cold, but that would only bring the market back above the psychological $2.00 level.
James Hyerczyk

Natural gas futures plunged last week and settled under the psychological $2.00 level as a shift in the forecast calling for much warmer temperatures encouraged speculative longs to dump positions, while bearish traders may have added to their short positions.

According to Natural Gas Intelligence, citing Bespoke Weather Services, “The latest guidance showed ‘a huge change in the warmer direction,’ the forecaster said. The European data ‘has warmed enough to drop about 80-90 Bcf in natural gas demand over the last 36 hours, and that is only for the next 15 days,’ the forecaster said Friday.

“…The warmer change can be directly attributed to the high latitude pattern offering no support for colder air intrusions into the United States…This pattern appears set to roll on into early February, and if that is the case, we will not hold $2.00 in prompt-month pricing” during the upcoming week, Bespoke said. Under such a scenario, “more demand losses will continue outweighing what would otherwise be solidly bullish balance data.”

Last week, March Natural Gas settled at $1.985, down $0.183 or -8.44%.

Short-Term Weather Outlook

According to NatGasWeather for January 17-23, “A strong weather system will track out of the West and into the central US today with areas of rain and snow, while chilly behind the cold front with highs of 10s to 30s. The East has cooled after a cold short raced through Thursday, followed by rain & snow increasing this weekend as the central US storm arrives. Much stronger demand is on tap for early next week as reinforcing cold shots follow across the Midwest and East with lows of -0s to 20s, including 20s and 30s into the South & Southeast. Warming will spread across much of the US late next week with highs of 30s and 50s across the northern US 60s & 70s across the southern US for light national demand. Overall, moderate demand through Sunday, high Monday through Wednesday, then low late next week.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on Thursday that domestic supplies of natural gas fell by 109 billion cubic feet (Bcf) for the week-ended January 10. Analysts were looking for a 92 Bcf withdrawal.

Total stocks now stand at 3.039 trillion cubic feet (Tcf), up 494 Bcf from a year ago, and 149 Bcf above the five-year average, the government said.

Weekly Forecast

The market starts the new week bearish. Although we could see bargain-hunters step in to slow down the price slide, we’re running out of time for a meaningful winter rally. There’s always the possibility that the models shift back toward cold, but that would only bring the market back above the psychological $2.00 level.

We’re going to be watching the open interest and the Commodity Futures Trading Commission (CFTC) Commitment of Traders report to tell us if the short-sellers added to their already established bearish positions. Just two weeks ago, traders were talking about a short-squeeze. That’s still possible, but not likely to occur unless a lingering cold spell is put back into the forecast.

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