Natural Gas Price Fundamental Weekly Forecast – Weather Forecast Inconsistencies Have Prices in Holding Pattern

Natural gas futures closed higher last week as investors shrugged off a smaller-than-expected weekly U.S. storage decline. The move suggests investors were probably looking ahead to future weather forecasts instead of reacting to the stale government storage data.

Helping to cap prices was a forecast that indicated a mid-December break from cold temperatures across much of the country. The price action at the end of the week may have been fueled by short-covering ahead of the week-end, or possibly aggressive buyers betting against the milder temperatures forecast for mid-December.

Last week, January Natural Gas settled at $4.612, up $0.257 or +5.90%.

U.S. Energy Information Administration (EIA) Report

The EIA reported a 59 Bcf withdrawal from U.S. natural gas stocks that came in well below expectations and a little on the bearish side.

The 59 Bcf withdrawal for the week-ended November 23 compares to a year-ago pull of 35 Bcf and a five-year average withdrawal of 49 Bcf. Although the draw was larger than the average, the 59 Bcf pull came in well below estimates that ranged from the upper 60s to mid-80s. It also came in well below the previous week’s bullish 134 Bcf pull, which topped estimates.

Short-Term Weather Forecast

According to NatGasWeather.com for the period November 30 to December 6, “Warm high pressure will continue across the southern U.S. with highs of 60s to near 80F, then expanding across the Great Lakes and East with highs, warming into the mid-40s to 60s for lighter demand. The West will see weather systems bring rain, snow, and colder temperatures, spreading into the central US and Great Lakes this weekend. More impressive cold air will sweep across much of the country next week with lows of -10s to 20s across the central and northern US and 30s & 40s across Texas and the South. Overall, demand will ease to moderate this weekend, then back to high next week.”

Forecast

The short-term forecast has already been priced into the market. Therefore, this week’s price action is likely to be determined by 10-14 day forecast. This report continues to show frigid conditions for the eastern United States and the Northeast in particular.

NatGasWeather says, “All weather models continued to show a mild ridge setting up across much of the eastern two thirds of the country December 12-15 for lighter demand.”

“For the weekend break, if the ridge shows signs it will only last through December 16-17, the markets could see that as bullish and indicating the milder trends won’t last,” the forecaster said. “But if it looks to hold through December 20, the markets could see that as lasting too long.”

The inconsistencies in the weather forecasts suggest prices could trade in a range this week until traders get some clarity. This could mean two-sided trading on both sides of a technical area at $4.557 to $4.431.

However, a sustained move over $4.557 will indicate buyers are coming in to defend the trend. This would put the market in a position to challenge last month’s high at $4.964.

A sustained trade under $4.431 will be a sign of weakness. It won’t change the trend to down, but it could lead to another test of the major support zone at $4.082 to $3.873.