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Natural Gas Price Fundamental Weekly Forecast – Inconsistent Weather Forecasts Raise Trade Risks

By:
James Hyerczyk
Published: Nov 3, 2018, 22:36 UTC

Buyers keep coming in on any weakness and any forecast that puts cold temperatures into the picture. However, bullish traders should remain cautious about going “all in” at this time.

Natural Gas

Natural gas futures recovered last week after finishing lower the week-ending October 26. The market was supported by a slightly bullish weather forecast and a friendly U.S. Energy Information Administration weekly storage report. Traders posted two-siding trading action throughout the week due to rapidly changing forecasts, but Friday’s strong rally indicates that buyers are taking the last forecast calling for colder temperatures a little more seriously.

For the week, December Natural Gas futures settled at $3.284, up $0.059 or +1.83%.

U.S. Energy Information Administration (EIA) Report

Besides issues with the weather forecasts, traders were also responding to the latest weekly storage data from the U.S. Energy Information Administration (EIA).

The EIA reported a 48 Bcf injection into Lower 48 natural gas stocks for the week-ending October 26. This was slightly below the estimates, but traders sold the market anyway due to the uncertainty over the weather. This put an end to the three-day rally and threatened to turn the market lower for the week.

Ahead of the EIA report, analysts were looking for a storage injection of around 50 billion to 55 billion cubic feet. The five-year average for the week is an injection of 62 billion cubic feet, and last year’s storage increase for the week totaled 65 billion cubic feet.

Additionally, total U.S. stockpiles decreased slightly week over week to 16.5% below last year’s level and also fell slightly to 16.9% below the five-year average.

The EIA report also reported that U.S. working stocks of natural gas totaled about 3.143 trillion cubic feet at the end of last week, around 638 billion below the five-year average of 3.781 trillion cubic feet and 623 billion below last year’s total for the same period. Working gas in storage totaled 3.766 trillion cubic feet for the same period a year ago.

U.S. Natural Gas Weather Forecast

On Friday, NatGasWeather said, a cold snap expected from next Thursday to Saturday (Nov. 8-10) “still looks to be more impressive than the reinforcing cool shot that follows Nov. 11-13, but the combination of the two should lead to considerably larger than normal heating degree day totals compared to the 30-year average and should result in the first weekly draw on supplies of the season.”

Forecast

Buyers keep coming in on any weakness and any forecast that puts cold temperatures into the picture. However, bullish traders should remain cautious about going “all in” at this time.

This is because the forecasts are only calling for “cold shots” and “cold snaps”, not lingering cold systems or cold domes, which would suggests cold temperatures for a longer period of time.

Furthermore, Bespoke Weather Services is not as friendly as the guys at NatGasWeather.com. Bespoke still expects warmer trends for mid-November. This raises risk issues.

We get that stocks are low and winter is approaching, but you don’t want to jump the gun too soon because the weather forecasts remain inconsistent as to when the major cold spell will start.

If the weather forecasts call for persistently cold temperatures then bullish traders are going to have to be willing to buy strength over $3.318, $3.384 and $3.409. Buying strength raises risk issues for traders.

The value area remains $3.125 to $3.057.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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