Natural Gas Price Fundamental Weekly Forecast – Could See Another “Gap and Go” on Monday’s Opening

Natural gas futures had a volatile week, highlighted by Monday’s gap-higher opening and two-sided trade, before closing higher. The price action was fueled by the weather. The first price surge was triggered by last weekend’s cold blast and forecasts for an additional cold blast later in the week. However, a slight warm spell chased speculators out of the market until Friday when the market posted a dramatic turnaround ahead of the week-end.

Last week, March natural gas futures settled at $3.239, up $0.294 or +9.98%.

The strength on Friday was driven by a reaction to some weather models which showed increasing chances of bitter cold weather this weekend and possibly the next two.

U.S. Energy Information Administration Weekly Storage Report

According to the EIA report released on Thursday, domestic supplies of natural gas fell by 81 billion cubic feet for the week-ended January 11. Analysts were looking for a consensus decline of 77 billion cubic feet. However, it fell between the 76-82 Bcf range of guesses. This also came in well-below the five-year average of a 218 Bcf withdrawal.

Total stocks now stand at 2.533 trillion cubic feet, down 77 billion cubic feet from a year ago, and 327 billion below the five-year average, the government said.

Short-Term Weather Outlook

According to NatGasWeather for January 18-24, “High pressure will dominate much of the southern US one last day with warm highs of 60s and 70s before colder air arrives this weekend where lows will drop into the 20s and 30s. A strong weather system with heavy rain and snow, but more importantly frigid air, will advance across the Plains and Midwest the next couple days, then across the Ohio Valley and East this weekend with lows of -20s to 20s. A brief milder break will follow mid-next week before another frigid cold shot sweeps across the same regions. The West will see a mix of mild and cool as weather systems track inland. Overall, national demand will be moderate-low today then increasing to high-very high this weekend.”

Forecast

Depending on where the frigid temperatures struck this week-end, we could be looking at another “gap and go” trade on Monday’s opening. After the opening, the weather reports on Monday should set the tone for the week.

Bespoke Weather Services said that it expected “models to show significant long-range cold risks on Monday, as many of the colder risks currently seen are finally able to roll forward.”

After being burned by predictions of cold weather in December, investors are being cautious at this time, while waiting for confirmation of the bitter cold forecasts. As they gain confidence in the current forecasts, volume and volatility could increase substantially.