Natural Gas Price Fundamental Weekly Forecast – Set Up for Rally, But Needs Weather to Cooperate

Natural gas futures closed lower last week, but higher on Friday. The selling pressure throughout the week represented the headwinds from the weak winter weather season. The rebound on the last day of the week represented indications of a tightening supply/demand balance.

Friday’s potentially bullish technical closing price reversal chart pattern was not fueled by the weather, according to NatGasWeather.

“The timeline remains the same, with a milder-than-normal pattern for much of the United States through February 9, but still with stronger pushes of cold air into the West and North February 10-15,” NatGasWeather said. “However, the amount of cold air into the Midwest and Northeast has backed off considerably since the start of the week for big demand losses, with only February 13-15 now looking cold enough to satisfy.

“…It does help that the supply/demand balance has tightened considerably over the past month, but it’s up to weather patterns to take advantage, and they simply haven’t.”

Last week, March natural gas settled at $1.841, $0.029 or -1.55%.

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas fell by 201 billion cubic feet for the week-ended January 24. That was below the 207 Bcf forecast by analysts at S&P Global Platts.

Bloomberg analysts issued a median prediction for a 197 Bcf withdrawal. A Wall Street Journal survey and a Reuters survey averaged minus 195 Bcf. The Natural Gas Intelligence model predicted a 210 Bcf withdrawal.

Total stocks now stand at 2.746 trillion cubic feet (Tcf), up 524 Bcf from a year ago, and 193 Bcf above the five-year average, the government said.

Weekly Forecast

The direction of the March natural gas futures market this week is likely to be determined by trader reaction to the price gap at $1.963 to $1.977.

Overcoming $1.977 and sustaining the move could trigger the start of an acceleration to the upside. A shift toward cold will underpin the market, but it’s going to be short-covering that fuels a potential breakout to the upside. In this case, we’re counting on a few of the weaker shorts to start covering their positions aggressively.

If there is no follow-through to the upside on a move through $1.977 then look for the selling to resume late in the week. In this case, we’re likely to see a new contract low.