Natural Gas Price Fundamental Weekly Forecast – Need to See Lingering Cold Forecast to Sustain Rally

Natural gas futures finished lower last week, but well off their low as forecasts showing colder trends in December sent prices sharply higher on Friday. Firmer spot market prices in California, the Pacific Northwest and the Northeast also underpinned prices.

Traders will be watching for colder temperatures during the first few days of December if American model guidance proves to be accurate. Bespoke Weather Services isn’t sure of the short-term direction of the market, but sees price risk due to the changing weather pattern.

Last week, January natural gas settled at $2.710, down 0.040 or -1.45%.

“Just like last Friday, we are also facing a very tricky forecast heading into the weekend,” Bespoke said on Friday. “Weekend risk is always greater, but especially here, as there has been enough cold showing up” on recent runs of the American model to “easily support higher prices in the near-term…Confirmation of those runs would likely take us to $2.75 Monday.”

“But that model has been very erratic, so we have little faith in it verifying. We actually still feel the pattern ultimately breaks warmer, and seeing the evisceration of the North Atlantic Oscillation block in most guidance gives some support to our view.”

US Energy Information Administration Weekly Storage Report

On Thursday, the EIA reported that domestic supplies of natural gas fell by 94 billion cubic feet for the week ended November 8. That number marked the first decline of the inventory withdrawal season. Analysts were looking for a draw of about 86 Bcf.

The 94 Bcf figure comes in well above the five-year average pull of 32 Bcf, but shy of the 109 Bcf withdrawal the EIA recorded for the year-ago period.

Bloomberg analysts were looking for a median prediction of 88 Bcf, with estimated withdrawals ranging from 82 Bcf to 99 Bcf. The ICE EIA Financial Weekly Index futures settled Tuesday at minus 87 Bcf. Natural Gas Intelligence (NGI) predicted a 101 Bcf withdrawal.

Total stocks now stand at 3.638 trillion cubic feet, up 506 billion cubic feet from a year ago, but 60 billion cubic feet below the five-year average.

Short-Term Weather Forecast

According to NatGasWeather for November 22 – 28, “One weather system will track into the Northeast today, while a second system tracks into Texas and the South. However, these systems won’t bring much added demand since they are only slightly cool for this time of year with highs of upper 30s to 50s. The rest of the U.S. will be mild with highs of 50s to 70s. The Texas system will track into the east-central and eastern U.S. Saturday. High pressure will bring warmer conditions over the eastern half of the country early next week as cold air pours into the West. Overall, moderate demand.”

Weekly Forecast

Low prices and a shift in the weather forecast to slightly colder during the first week of December could underpin the market, but it’s going to take a major cold front to drive it sharply higher. That’s why I think any rally is going to be looked at as a shorting opportunity by professionals.

The short-term range on the weekly chart is $2.980 to $2.570. Its retracement zone at $2.775 to $2.823 is the first upside target and resistance.

I don’t think traders will start to take a rally seriously until a short-covering rally overcomes $2.823. And even then, the trend won’t change to up until buyers take out $2.980.