Natural Gas Price Prediction – Prices Drop on Mild Weather Forecast

Natural gas prices dropped 3.3% on Monday as the weather forecast turn more mild, taking some of the upward volatility out of prices. The trajectory of inventories is still flat and well below the 5-year average which should keep prices buoyed. Hedge funds remain long NYMEX natural gas but reduced some of their length according to the latest industry report. A warmer than expected winter would likely lead to a long liquidation by hedge funds.

Technical Analysis

Natural gas prices tumbled 3.3% on Monday, and are forming a topping pattern. Prices are below the 5-year average, ahead of withdrawal season, but hedge funds length is capping upward momentum. Support on natural gas is seen near the 50-day moving average at 3.005. Resistance is seen near the October highs at 3.37. Momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in the red with a declining trajectory which points to lower prices.

Hedge funds Are Long Natural Gas

According to the latest commitment of trader’s report released for the date ending October 16, hedge funds are nearly 6-times longer futures and options related to short position held in natural gas contracts. This could lead to a substantial long liquidation if the weather turns warmer.  In the latest week managed money reduced long positions in futures and options by 10K contracts while also reducing short position in futures and options by nearly 3K contracts. Managed money is currently long 301K contracts while short 57K contracts. The offset is in other reportable which does not include swap dealers which are generally offset by commercials who deal directly through swap dealers.