Natural Gas Fundamental Forecast – December 13, 2016

Natural gas futures retreated on Monday as new forecasts showed temperatures may not reach the cold levels previously predicted.

January natural gas futures closed at $3.507, down $0.239 or -6.38%. The March contract finished at $3.486, down 0.205 or – 5.55%.

The current arctic blast hitting key demand areas has been fully-priced into the market. However, updates to weather models over the weekend indicated that the end of the month could be warmer that what forecasters previously expected, with warmer-than-typical temperatures across the eastern U.S.

Forecast

I think we’re entering a very volatile period for natural gas prices. On one hand, there may be those who wish to hang on to the belief that the current below normal weather pattern could spread into January. On the other hand, the current cold temperature pattern could translate into big withdrawals from natural gas stockpiles in the coming weeks.

This likely means that Thursday’s U.S. Energy Information Administration’s weekly inventory report is going to be a major market moving event, especially if we trade sideways to lower going into it. For the week-ending December 2, natural gas storage stood at -42 billion.

The volatility could be fueled by a key timing issue. Basically, the lag between the forecasts and the EIA reports.

Traders may try to press this market lower if the forecast shows warmer temperatures creeping in at the end of the month. However, we’re not going to know how large the storage drawdown was for the week-ending January 16 until next week and this is the week the country is expected to experience sub-zero temperatures.

Essentially, we could be looking at a whip-saw market over the near-term if future weather patterns indicate average or above average temperatures while the storage reports show greater-than-expected drawdowns.

The main trend turned down on the daily March natural gas chart on Monday, but there wasn’t much selling pressure under the previous bottom at $3.468. This could mean that short-sellers are scarce or that longs are still holding on to their positions. The current chart formation indicates that we could still rally with $3.685 to $3.902 the next upside target for the March contract and $3.233 to $3.123 the next major downside target.

Look for volatility and a possible two-sided trade. Despite the return of warmer temperatures, we could still see most of the long standing huge surplus disappear with a deficit developing by next month.

Related Articles

Gold Fundamental Forecast

EUR/USD Technical Analysis Forecast

GBP/USD Technical Analysis

Natural Gas Fundamental Forecast

Major US Indices Forecast