Natural Gas Price Fundamental Weekly Forecast – Cold Temps are Coming but When?

Natural gas futures finished lower last week as uncertainty over the 10 to 14 day weather forecast raised concerns over future demand and U.S. government storage data showed a bigger than expected increase. This was enough to stop the bulls from buying and even encouraged some profit-taking after a recent run-up in prices. There was even evidence of fresh shorting on the daily chart as the trend changed to down on that short-term chart.

Last week, December Natural Gas futures settled at $3.225, down 0.084 or -2.54%.

NatGasWeather Outlook

The weather forecasts the last two weeks have been confusing traders. Short-term forecasts have come out on the bullish side due to expectations of a pair of short-term cold snaps. The 10-14 day forecasts, however, have put warmer temperatures in view. The sideways-to-lower price action has traders calling for consistency in the forecasts.

The latest NatGasWeather forecasts indicate that milder weather could be coming in November. Their Global Forecast System data indicated milder temperatures for this week-end, but then notably colder November 3 to November 5 throughout the central United States and Midwest. The latest forecast was also confirmed by the European model.

NatGasWeather went on to say the pattern is still mostly mild November 6-9 in most of the data, but the cooler central United States trend November 2-5 will make milder days before and after less impactful. “The focus remains on how long this milder November 6-9 pattern will last, with the data still suggesting around November 12-13 before stronger cold blasts return,” the weather experts said.

U.S. Energy Information Administration (EIA)

Last Thursday, the EIA reported that U.S. natural gas stockpiles increased by 58 billion cubic feet for the week-ending October 19. This fell within the range of estimates, but was higher than the consensus estimate of 47.

The five-year average for the week is an injection of 77 billion cubic feet, and last year’s storage increase for the week totaled 63 billion cubic feet. Natural gas inventories rose by 81 billion cubic feet in the week-ending October 12.

Total U.S. stockpiles increased slightly week over week to 16.4% below last year’s level and dipped slightly to 16.8% below the five-year average.

The EIA reported that U.S. working stocks of natural gas totaled about 3.095 trillion cubic feet at the end of last week, around 624 billion cubic feet fellow the five-year average of 3.719 trillion cubic feet and 606 billion cubic feet below last year’s total for the same period. Working gas in storage totaled 3.701 trillion cubic feet for the same period a year ago.

Forecast

The weekly chart indicates the main trend is up, but due to a change in trend to down on the daily chart, short-term momentum has shifted to the downside. A trade through $3.409 will signal a resumption of the uptrend. A move through $2.840 will change the main trend to down.

The short-term range is $2.840 to $3.409. Its 50% to 61.8% retracement zone at $3.125 to $3.057 is the primary downside target. Since the main trend is up, buyers are likely to come in on a test of this zone. If it fails to hold as support, weaker prices will follow.

Fundamentally, traders will be primarily focused on the weather forecast for November 6-9. Prices are likely to remain under pressure if milder temperatures extend beyond November 9. Some data is suggesting the pattern could extend into November 12-13.

Prices can turn up rather quickly if the next cold blasts returns about November 9. Prices are likely to be capped if the milder temperatures stick around until November 12-13.

Basically, there’s a cold blast coming but traders aren’t sure if it will arrive before or after November 12-13.