Natural Gas Price Fundamental Weekly Forecast – Expect Volatility Until Weather Forecasts are Consistent

Traders should continue to expect a two-sided trade over the near-term due to the volatility in the weather forecasts. Until the weather services can settle on a forecast, traders are likely to continue to jockey for position.
James Hyerczyk
Natural Gas
Natural Gas`

Natural gas futures finished higher last week, but it took a late session rally on Friday to save the market from a possible weekly lower close. Prices were mixed for the week but leaning toward the downside before the market reversed course on Friday when a change in the midday weather forecast brought colder temperatures back in focus.

For the week, December Natural Gas futures settled at $3.309, up $0.083 or +2.57%.

After firming early in the week, the market sold off sharply late in the week due to a neutral U.S. Energy Information Administration weekly storage report and somewhat bearish weather forecast.

On Thursday, the EIA announced an injection of 81 Bcf into storage for the week-ended October 12. This figure put the current national stocks at 3.307 Tcf. Inventories now stand 601 Bcf lower than year-ago levels and 605 Bcf lower than the five-year average of 3.642 Tcf.

Thursday’s number fell largely in line with the 83 Bcf build forecast by a consensus of analysts. The five-year average build for the same time period is 79 Bcf.

Bearish traders responded to a change in the weather report on Thursday by selling. The new report raised temperature expectations. Prices rose sharply on Friday when the forecast shifted back to colder than average temperatures.

Forecast

Traders should continue to expect a two-sided trade over the near-term due to the volatility in the weather forecasts. Until the weather services can settle on a forecast, traders are likely to continue to jockey for position.

NatGasWeather.com for the period October 19 to October 25 is saying, “The next cold shot will begin pushing into the N. Plains, then across the Great Lakes and eastern U.S. over the week-end into early next week with chilly lows of 20s and 30s. High pressure will warm much of the country during the second half of next week with mostly comfortable temperatures. Overall, national demand will be high.”

The addition of the warm weather is what pushed prices lower on Thursday and early Friday. A change in the forecast at midday to colder temperatures is what drove prices higher into the close.

This week, we could see increased volatility as traders look for more consistency in the forecast and whether the cold will linger through the end of October/early November.

Looking ahead to Thursday’s Energy Information Administration (EIA) report, early estimates range from 50 Bcf to 72 Bcf. This week’s report will be very important to market sentiment to see how record production fared against colder-than-normal conditions across much of the U.S. last week.

Bullish news could drive the market through $3.409. Bearish news will likely drive the market into a support zone at $3.125 to $3.057.

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