Natural Gas Price Fundamental Weekly Forecast – Long Range Forecasts Predicting Unseasonably Mild Temperatures

Natural gas futures finished lower last week with the market hitting a new contract low before recovering some of its loss into Friday’s close. The prolonged move down in prices has been fueled by long-range weather forecasts calling for unseasonably mild temperatures lingering awhile longer. “Furthermore, any hints of cooler air returning have been quickly dismissed as weather models remain at odds, with the American data persistently colder than the European data,” according to Natural Gas Intelligence (NGI).

Last week, February natural gas settled at $2.231, down $0.079 or -3.42%.

The market was under pressure from the get-go last week as prices gapped lower. However, on Thursday, natural gas showed signs of life after a forecast shifted colder in the 11- to 15-day period, which caught some independent weather forecasters off guard.

On Friday, the government storage report was friendly but not strong enough to entirely erase the bearish tone created by the bearish weather outlook.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Friday that domestic supplies of natural gas fell by 161 billion cubic feet for the week-ending December 20. Analysts were looking for a drop of 150 to 153 bcf.

Total stocks now stand at 3.250 trillion cubic feet, up 518 bcf from a year ago. The five-year average stands at 3.319 bcf, down 69 bcf, according to the government report.

Short-Term Weather Outlook

According to NatGasWeather for December 27 to January 3, “Strong high pressure will dominate much of the US through the weekend with above than normal conditions as highs reach the 40s to 70s, warmest over the southern US. The West will be unsettled with rain and snow showers, while the Northern Plains will be the only truly cold area with highs of 20s and 30s, but over very low population states. A cold shot will push into the central US early next week with lows of 10s to 30s, then into the Northeast December 31. Overall, very light national demand through the weekend, then moderate early next week.”

Weekly Forecast

Bespoke Weather Services ended the week by saying, “Weather models on Friday moved significantly warmer into the new year. The European model made the largest change, dropping more than 20 forecast gas-weighted degree days (GWDD) overnight, while the Global Ensemble Forecast System dropped just under 10,” Bespoke said.

“We expected to see some warmer progression based on the look of the pattern in both the Pacific and Atlantic, as we still have the persistent positive EPO/NAQ combination, which is unfavorable for cold outside of parts of the West,” Bespoke said. “With that in mind, we still would not be surprised if the days in today’s 11-15-day forecast shift warmer once they progress into the six- to 10-day.”

Bespoke also said the next three EIA storage figures, “look weak because of how warm the weather pattern is, along with holiday impact.”

Traders should note that we could still see a surprise rally that is unrelated to the weather with the looming expiration of the January NYMEX contract and speculators still heavily short. In other words, watch for a short-squeeze.