Natural Gas Price Fundamental Weekly Forecast – Cold Shots Not Enough to Produce Prolonged Rally

Natural gas futures inched higher last week as prices continued to be influenced by “significant model differences on the intensity of cold later this month,” according to Natural Gas Intelligence. These weather concerns created a mostly sideways trade last week as the American model trended colder late in the week, but the milder European model remained “basically unchanged”, widening the gap between the two datasets, according to Bespoke Weather Services.

Last week, December natural gas settled at $2.517, up $0.060 or +2.44%.

U.S. Energy Information Administration

On Thursday, the EIA reported a 104 Bcf injection into natural gas storage inventories for the week-ending October 11, marking the third time in four weeks that stocks have risen by at least 100 Bcf. Traders were expecting a triple-digit build and the actual number fell inside the expected range.

Last year’s EIA report came in at 82 Bcf. The five-year average injection is 81 Bcf.

Total working gas in storage ended the period at 3,519 Bcf, 494 Bcf above year-ago levels and 14 Bcf above the five-year average.

Mid-Term Outlook

The first cold shot is slated for Wednesday (Oct. 23) through next Saturday (Oct. 26), with potentially a brief break Oct. 27-28, according to NatGasWeather.

“This first cold shot will drop lows into the 20s and 30s across the Midwest and Northeast, locally colder, but the more ominous one is expected October 29-November 2 and where lows are more likely to dip into the teens to 30s for widespread stronger-than-normal demand,” the firm said.

“The latest GFS (American Model) also suggested cold would last into November 3-4,” NatGasWeather said. It does, however, see risks for a few Heating Degree Days (HDDs) to be lost for the last week of October, “but with the potential for cold lasting longer into the first several days of November.”

Weekly Forecast

The minor range is $2.388 to $2.564. Its 50% level or pivot is $2.476. Trader reaction to this pivot will determine the direction of the December natural gas market this week.

Last week, expectations of cold later in the month helped the market close on the strong side of this pivot. This could give the market an upside bias at the start of the week.

Bullish Scenario

Holding above $2.476 will indicate the presence of buyers. Taking out last week’s high at $2.564 could trigger an acceleration into a short-term retracement zone at $2.636 to $2.695.

Bearish Scenario

A sustained move under $2.476 will indicate the presence of sellers. The next potential target is the October low at $2.388.

The natural gas market is likely to be underpinned because of the upcoming cold. However, I don’t expect to see a huge rally because the cold temperatures are expected to be short-lived.

The only way we’re going to see a prolonged rally is if the forecasts extend the duration of the cold spell to about 7 to 10 days. We may see this change latter in the week. If this is going to occur, it will likely take place during the first week of November.