Natural Gas Prices Forecast: Bearish Tone Emerges Ahead of EIA Storage Report

Key Points

• Speculation and Weather Shifts Lower Gas Futures
• EIA Report Predicts Significant Inventory Drawdown
• Short-Term Natural Gas Market Shows Bearish Tendencies

Natural Gas Futures Retreat Amid Market Shifts

Natural gas futures are trading lower early Thursday, breaking away from the steady climb observed since the beginning of the year. This change is primarily attributed to speculative doubts and a bearish sentiment, influenced by expectations of milder temperatures towards the end of January. The reduction in open interest for the February futures contract following Tuesday’s high suggests that short-covering has been a significant factor in the recent fluctuations in price.

Influence of Weather Predictions

The market’s reaction to the drop in prices below $3, following a recent two-month high, reveals a cautious stance among traders. This caution is rooted in the expectation of colder weather in the coming week, which could potentially elevate demand and prices. Currently, the market is balancing between taking profits from the recent price increase and the prospect of a demand surge due to colder weather.

Expected Drawdown in EIA Report

The forthcoming EIA report is likely to show a notable drawdown in underground gas storage for the week ending January 5th, estimated at 117 Bcf. While significant, this number is below the five-year average. The predicted cold spell across the U.S., featuring extreme lows and hard freezes, is expected to heighten national demand and diminish the storage surplus, which was 13% above the five-year average at December’s end.

Trends in Inventory and Weather Impact

The onset of colder weather in early January probably led to an increased withdrawal from natural gas inventories, boosting demand. The projected reduction in natural gas storage, though larger than the previous week’s withdrawal, still falls short of the average for this time of year. The market is now focusing on the weather outlook for the next 10-14 days, which anticipates a warming trend.

Short-Term Outlook: Cautious Bearish Tendency

In the short term, the natural gas market is leaning towards a bearish outlook. The recent dips in price and the market’s sensitivity to weather forecasts suggest a potential easing from recent highs. The expected warmer weather in the upcoming days could exert further downward pressure on prices. Nonetheless, traders should stay alert, as the market remains responsive to sudden shifts in weather and demand, which could quickly change the market’s direction.

Technical Analysis

The current daily price of Natural Gas at 2.972, above the 50-day moving average of 2.788 but below the 200-day moving average of 3.077, presents a complex market sentiment. This position above the 50-day average indicates bullish tendencies in the medium term, hinting at potential upward momentum. In contrast, staying below the 200-day average suggests lingering bearish pressures over a longer timeframe.

The pivot point at 3.056, which doubles as both minor support and resistance, is crucial. If prices consistently stay above this level, it could enhance bullish sentiments, potentially leading to a challenge against the main resistance at 3.315.

However, if prices fail to break through this pivot, there’s a risk of a decline towards the main support at 2.874, reinforcing a bearish perspective. The market, thus, stands at a critical point, where its future direction hinges on its ability to maintain or breach these key levels.