Natural Gas Price Fundamental Weekly Forecast – Weather Model Uncertainty Could Lead to Another Gap Opening Monday

Natural gas finished lower last week as traders continued to be confounded by unreliable weather forecasts that led to mostly two-sided price action. The market gapped lower last Monday, but gained back most of that loss throughout the week. However, on Friday, prices retreated again as traders priced in the possibility of another gap opening this week.

For the week, February natural gas settled at $2.282, down $0.037 or -1.60%.

Erratic Weather Models

Natural gas futures were posting a solid rebound rally into Friday as weather models started to converge on prospects for late-December cold. However, a sudden shift occurred in all the models overnight Thursday, sending prices lower and putting fear into traders that Monday’s session will feature another gap opening.

Bespoke Weather Services said “all of the runs began to change by Days 4-5 toward more upper-level troughing in the Gulf of Alaska through Western Canada, indicating that something was picked up in the initialization of Thursday night’s run that was not there at midday.”

“As it stands now, the pattern is back easily on the warm side of normal overall, and we do not see any sign yet of a turn back materially colder, even in the pattern at the end of the 11-15 day,” Bespoke chief meteorologist Brian Lovern said.

NatGasWeather said, “The midday Global Forecast System (GFS) model trended further milder through December 23, but was colder for the December 25-28 period, offsetting to keep 15-day run total heating degree days (HDD) little changed compared to Thursday night, according to NatGasWeather. Meanwhile, the afternoon run of the European model trended a little colder for the coming week, but was milder trending for December 20-25 by favoring an exceptionally bearish pattern with much warmer-than-normal conditions over most of the country.”

“The end of the European model run at Days 14-15 showed a little stronger cooling pushing back into the northern United States, but still with national demand below normal,” NatGasWeather said. “We thought the European model might have gotten a little too warm last night after it lost a massive 27 HDDs, which proved true by adding 7 HDDs back this run. But it’s still much milder than the data had shown 24 hours ago and is still showing a very bearish set up December 20-26 that’s difficult to ignore.”

U.S. Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural as fell by 73 billion cubic feet for the week-ending December 6. Analysts were looking for a 74 billion cubic feet drawdown, on average.

Total stocks now stand at 3.518 trillion cubic feet, up 593 billion cubic feet from a year ago, but 14 billion cubic feet below the five-year average, the government said.

U.S. Drops Four Natural Gas Rigs

According to Baker Hughes, the U.S. natural gas rig count fell by four to 129 for the week ended Friday.

Weekly Forecast

Heading into the weekend, the forecast was bearish with traders primarily focusing on the milder trending December 20-26 time period. However, significant shifts are still possible over the weekend, which means traders should be prepared for a gap opening in either direction on Monday.

After the opening, the duration of any move will be determined by whether temperatures begin to trend over a prolonged period of time. This could create a trend in prices. If the forecast fails to reveal a prolonged weather trend then continue to watch for a volatile, two-sided trade this week.