Natural Gas Price Fundamental Weekly Forecast – Weather Too Mild to Sustain Rally

Despite a drop into a multi-month low early in the week, natural gas futures were able to recover enough to close higher. Without a major change in the fundamentals, the price action was likely related to oversold technical factors. U.S. natural gas stocks continued to tighten, but most traders appear unconcerned with futures prices for gas delivered this winter close to the lowest levels since the start of the year.

December Natural Gas futures settled at $2.984, up $0.20 or +0.67%.

This week’s U.S. Energy Information Administration’s storage report for the week-ending October 27 rose by 65 billion cubic feet. That figure matched the average forecast.

Total stocks now stand at 3.775 trillion cubic feet, down 180 billion cubic feet from a year ago, and 41 billion cubic feet below the five-year average.

Forecast

Last week’s price action suggests the market may be trying to build a support base. Even if it does, gains are likely to be limited because the weather is expected to remain mild, which should lead to lower demand.

According to natgasweather.com for the period November 3 to November 9, “Weather systems with rain and snow will impact West and north-central U.S. with chilly conditions through the weekend.”

“The southern and eastern U.S. will become quite warm into early next week with highs of 60s to 80s, requiring light demand.”

“A weather system will track across the northern U.S. mid-next week with modest cooling across the Great Lakes and Northeast.”

“Overall, demand will be moderate.”

We could see a continuation of the short-covering early this week, but any rally is likely to be short-lived. Due to the absence of extremely cold weather, any gains are likely to be limited. Traders should continue to treat rallies as shorting opportunities.

The key upside target this week is $3.023 to $3.064. Since the trend is down, sellers are likely to come in on a test of this area. A sustained move over $3.064 will mean the short-covering is getting stronger, however, any rally over this level is likely to eventually stall.