Natural Gas Price Fundamental Weekly Forecast – Technical Reversal Bottom Could Fuel Short-covering Rally

Despite reaching another multi-month low for the season last week, natural gas futures managed to eke out a small weekly gain. Volume was extremely light last week due to the upcoming holiday week so we have to take the price action with a grain of salt. We probably saw a reaction to oversold conditions as well as end-of-the year position-squaring. It’s going to be cold in some key demand areas of the United States, but temperatures are not expected to remain below average for very long.

February Natural Gas futures settled at $2.658, up $0.023 or +0.87%.

The U.S. Energy Information Administration (EIA) reported last Thursday that U.S. natural gas stocks decreased by 182 billion cubic feet for the week-ending December 15. The five-year average for the week is a withdrawal of 125 billion cubic feet, and last year’s storage withdrawal for the week totaled 100 billion cubic feet. Natural gas inventories fell by 69 billion cubic feet in the week-ending December 8.

Total U.S. stockpiles fell week over week to 5% below last year’s level and are now 2.4% below the five-year average. The EIA reported that U.S. working stocks of natural gas totaled about 3.444 trillion cubic feet, around 84 billion cubic feet below the five-year average of 3.528 trillion cubic feet and 183 billion cubic feet below last year’s total for the same period.

Working gas in storage totaled 3.627 trillion cubic feet for the same period a year ago.

Forecast

According to NatgasWeather.com for the December 25 to December 28 time period, “Cold air will sweep across the northern and central U.S. the next few days with lows dropping below 0 degrees Fahrenheit to 20 degrees, with below freezing conditions also pushing into North Texas. The Northeast will be slightly cool while mid high pressure sets up across the rest of the Mid-Atlantic and Southeast. Cold air will push the mild ridge out of the way over the East Coast Christmas Day, with reinforcing frigid cold shots continuing through next week. Overall, demand will be rapidly increasing the next several days to high to very high.”

The chart pattern suggests there may be more buyers than sellers at current price levels. The technical closing price reversal bottom chart pattern is potentially bullish. A trade through $2.789 will confirm the chart pattern. This could trigger the start of a 2 to 3 week rally with $2.941 to $3.030 the primary upside target. A trade through $2.562 will negate the chart pattern and signal a resumption of the downtrend.

The current weather forecast is a short-term event and the below average temperatures are not expected to last very long. Therefore, a spike in demand could trigger a short-covering rally over the near-term. However, without an elongated support base, don’t expect much of a rally beyond the retracement zone at $2.941 to $3.030.