Natural Gas Price Fundamental Weekly Forecast – Gap Through $4.074 Puts $2.745 on the Radar

If last week’s price action in the spot natural gas market is any indication then look for lower futures prices over the near-term.

According to Natural Gas Intelligence (NGI), “spot natural gas prices fell like dominoes during the week’s four-day trading period from November 30-December 3 for December gas delivery amid widespread mild weather that sapped demand. At the end of the trading period, daily gas was trading below $4.00/MMBtu at several locations across the United States, with NGI’s Weekly Spot Gas National Average down 86.5 cents to $4.145.”

Last week, January natural gas futures settled at $4.132, down $1.345 or -24.56%.

US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas fell by 59 billion cubic feet (Bcf) for the week-ended November 26. That matched the average decline forecast by analysts polled by S&P Global Platts, and compared with a five-year average decrease of 31 Bcf for the period.

Ahead of the government report, Natural Gas Intelligence (NGI) said “Major surveys had coalesced around a withdrawal in the high 50s Bcf. The median projection in Bloomberg and Reuters polls was a 58 Bcf pull. NGI also modeled a 58 Bcf draw.”

Total stocks now stand at 3.564 trillion cubic feet (Tcf), down 375 Bcf from a year ago and 86 Bcf below the five-year average, the government said.

Weekly Weather Forecast

According to NatGasWeather for December 6 – 12, “A cold shot will sweep across the Midwest and Northeast the next few days with lows of 10s to 30s for an increase in national demand.

The southern U.S. remains comfortable with highs of 50s to 70s, including 70s up the Mid-Atlantic Coast.

The early week cold shot will exit the Northeast late in the week, with warm high pressure setting up over the southern and eastern U.S. with highs of 50s to 80s for light demand.

The Northwest will be the nation’s only cool region in mid-December as weather systems bring rain, snow, and chilly highs of 10s to 40s.

Overall, national demand will be moderate early in the week, then low-very low after.”

Weekly Outlook

Looking ahead to this week’s EIA report, early estimates were for a withdrawal in the 40s Bcf and 50s Bcf.

Technically, the one-year trading range of the Nearby Natural Gas Futures contract is $2.745 to $6.719. Last week, the market settled on the weak side of its retracement zone at $4.263 to $4.732, making it resistance.

UPDATE:  The nearby January Natural Gas futures contract gapped sharply lower on Monday, taking out the August main bottom at $4.074 and changing the main trend to down. The price action puts the December 28, 2020 main bottom at $2.745 back on the radar.

The price action also suggests that traders may be throwing in the towel on excessive winter demand. We can’t even begin to think about a rally until buyers recapture $4.263.