Natural Gas Price Prediction – Prices Fall as Weather Remains Warm

Natural gas prices moved lower on Monday, and closed at the lowest level on record for the February contract. The decline was somewhat of a catchup from the robust drop in the January contracted which rolled over on Monday. While the continuation contract shows that prices increased, and remains above trend line support, the February contract continues to point to declining prices. Hedge funds continued to add to short position in futures and options as managed money continues to bet on lower natural gas prices. Cooler than normal weather is expected to cover most of the east coast of the US over the next 6-10 days, but this weather will be replaced by a warm front that is expected to rise up from the Gulf and could continue to weigh on natural gas prices.

Technicals

Natural gas prices declined on Monday and are poised to test the December lows at 2.167. The continuation contract shows the lows at 2.15. Resistance is seen near the 10-day moving average near 2.25. The choppy natural of price action has made it so momentum is positive to neutral. The MACD (moving average convergence divergence) index prints in the black with a flat trajectory which points to consolidation. The fast stochastic generated a crossover sell signal, and is now printing a reading of 11, well below the oversold trigger level of 20 which could foreshadow a correction.

Hedge funds added to short position in future and options while also adding to long positions. According to the most recent commitment of trader’s report released for the date ending December 24, 2019, managed money increased short position in futures and options by 12K contracts while increasing long position by 4k contracts. Open interest in the managed money category that is short futures and options outnumber open interest that is short by nearly 3-1 which keep the market vulnerable to a short-squeeze.