Natural Gas Price Fundamental Weekly Forecast – Will Professionals Continue to Short at Current Price Levels?

The price slide continued in the natural gas market last week as investors seem to have priced in almost no possibility of long-lasting below freezing temperatures this winter. Sure, we’re probably going to see a few cold blasts that will serve to drive the weaker shorts out of the market, but at the same time, they will also set up new opportunities to short the market.

Last week, February Natural Gas futures settled at $2.635, down $0.157 or -5.62%.

Expectations of another warm winter this season triggered a collapse in natural gas prices last week. The move was so severe that it caused natural gas futures traders to drive a full calendar strip to its lowest level on record, according to analysts and Reuters data going back two years. Reuters also said that those declines boosted the premium of calendar 2019 over 2018 to its highest since April 2016.

The previous week, the U.S. Commodity Futures Trading Commission said U.S. gas speculators cut their net long positions to the least since August 2016 on expectations supplies will be adequate this winter with storage near normal levels, output at record highs and warmer than seasonal winter forecasts.

According to the U.S. Energy Information Administration (EIA), natural gas storage in the U.S. fell by 69 billion cubic feet in the week-ended December 8. Analysts were looking for a draw of about 63 bcf.

That compares with a build of 2 bcf in the preceding week and represented a decline of 201 billion from a year earlier and was 27 bcf below the five-year average.

The EIA report also said total natural gas storage stood at 3.626 trillion cubic feet, 5.3% lower than levels at this time a year ago and 0.7% below the five-year average for this time of year.

Forecast

The recent price action suggests that investors have priced in lower demand until at least the end of the year. This move corresponds with the weather forecasts calling for the return of mild temperatures over the next two weeks.

If a support base is being built then we can build a case for a short-covering rally over the near-term. Unless this move correlates with increased demand, it will likely set up the next shorting opportunity.

The weather forecast for the next two weeks seems to have been priced into the market. All the bulls can hope for at this time is a major shift in investor sentiment due to oversold conditions. I’m not sure if the professionals want to short at current price levels so they may begin to take profits just to drive the weaker shorts out of the market.