Natural Gas Fundamental Forecast – November 4, 2016

Natural gas futures rallied on Thursday after the U.S. Energy Information Administration reported that supplies rose 54 billion cubic feet for the week-ended October 28. This was slightly below the 57 billion cubic foot rise forecast. Traders were unable to hold on to the intraday gains as the news was not strong enough to encourage short-sellers to aggressively cover their positions.

The EIA also reported that total stocks are now at 3.963 trillion cubic feet, up 48 billion cubic feet from a year ago and 173 billion cubic feet above the five-year average.

The EIA report also said that gas in underground storage is 1.2% higher than one year ago, and 4.6% above the five-year average.

January Natural Gas futures finished the session at $2.949, down 0.009 or -0.30%.

Forecast

Natural gas prices should continue to feel downside pressure as persisting warm weather patterns are expected to continue to weigh on normal fall demand. There has been no change in the weather forecast that strongly suggests warmer-than-usual temperatures are likely well into next week.

If the selling pressure accelerates to the downside then this will indicate that investors are prepping for a weak winter heating season. Additionally, bearish traders expect storage injections to continue to rise over the near-term.

According to natgasweather.com, from November 3 to November 9, a fresh weather system and associated cool front will move into the northeastern U.S. over the next several days, cooling high temperatures back into the 40s and 50s.

Over the rest of the U.S., unseasonable strong upper level high pressure will continue to dominate with above normal temperatures as highs reach the 50s and 60s north to 70s and 80s south.

Overall natural gas demand will remain lighter than normal with the lack of widespread subfreezing temperatures, but increasing marginally this weekend due to cooling over the Northeast.

Technically, the main range is $2.500 to $3.675. Its key retracement area is $2.947 to $3.086. The market is currently testing the lower level of the zone. If support builds over $2.947 then we could see the start of a short-covering rally. I wouldn’t get too excited unless the buying is strong enough to overtake $3.086.

If $2.947 fails as support then look for the selling pressure to extend into at least $2.895 to $2.877.