Natural Gas Price Fundamental Weekly Forecast – Cold Forecast, Trader Reaction to $3.964 Sets Weekly Tone

Natural gas futures finished lower last week but finished the week on a strong note, closing higher four sessions in a row after gapping sharply lower on Monday. The price action suggests we may have seen an exhaustion gap early last week with heavy selling pressure driving out the last bullish trader.

Last week, March natural gas futures settled at $3.788, down $0.133 or -3.39%.

Fundamentally, the market was being supported by light short-covering tied to a change in the weather forecasts, calling for colder temperatures between Christmas and New Year’s.

The short-covering was light because there was still some uncertainty around the forecasts. NatGasWeather said data added as many as nine heating degree days (HDD) to the 15-day outlook. But its analysts were still looking for further confirmation.

“To our view, the weather data is likely still a little too bearish and risks adding a few more HDDs over the weekend,” NatGasWeather said.

Furthermore, while the latest data suggested that more impressive cold is possible December 25-31, the forecaster said there still is more for the data to prove if it’s to be expected. Also of note is that the chillier air would likely arrive in the middle of the Christmas and New Year holidays, a time of year when gas demand typically is low, thereby limiting its impact on the market, Natural Gas Intelligence (NGI) reported.

Weekly Weather Outlook

According to NatGasWeather for December 13-19, “A strong Pacific storm will pummel the West this week with rain, snow and chilly highs of 10s to 40s. However, most of the rest of the U.S. will be much warmer than normal as strong upper high pressure rules with highs of 40s to 60s from the Midwest to the Northeast and 60s to 80s over the southern U.S.

National demand will increase this weekend as a cold system tracks across the northern U.S. with highs of 0s to 30s, although mild to warm over the southern half of the U.S. with highs of 40s to 70s.

Overall, national demand will be very low through Friday, then Moderate this coming weekend.”

US Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration (EIA) reported last Thursday that domestic supplies of natural gas fell by 59 billion cubic feet (Bcf) for the week ended December 3. That compared with the average decline of 55 Bcf forecast by analysts polled by S&P Global Platts.

Ahead of the EIA report, Natural Gas Intelligence (NGI) reported a Reuters survey showed withdrawal estimates ranging from 36 Bcf to 64 Bcf, with a median pull of 53 Bcf. A Bloomberg survey of seven analysts produced a tighter range of withdrawal projections, with a median draw of 60 Bcf. NGI also modeled a 60 Bcf decrease in inventories for the upcoming report, which covers net changes during the week-ended December 3.

In the year-earlier, EIA recorded a 55 Bcf withdrawal from storage, while the five-year average draw is 78 Bcf.

Total stocks now stand at 3.505 trillion cubic feet (Tcf), down 356 Bcf from a year ago and 90 Bcf below the five-year average, the government said.

Weekly Outlook

Traders are going to be cautious early this week because the longer-term weather forecasts are still bearish. We expect to see more short-covering, but at a slow pace. First traders are going to try to fill last week’s gap at $3.826 to $3.843.

If successful, the rally could extend into the long-term technical level at $3.964. Since the main trend is down, sellers could come in on the first test of this level.

Overcoming $3.964 will indicate the buying is getting stronger. If this move creates enough upside momentum, the rally could surge into the long-term 50% level at $4.378. This is the critical level that could determine whether prices move higher or lower into the New Year.