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Natural Gas News: Inventory Surplus or Weather Demand – What Will Drive the Market?
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Key Points:
- Traders eye a critical $3.0435 pivot for next week, which could determine if prices test $3.573 or pull back to $2.514.
- Cold weather forecasts pushed natural gas futures near October highs, with prices surging 10.84% last week.
- Profit-taking erased weekly gains as traders capitalized on a five-day rally fueled by colder weather predictions.
- Elevated U.S. gas inventories at 3,969 Bcf remain 239 Bcf above the five-year average, pressuring prices despite demand.
In this article:
What Drove Last Week’s Volatility?
Natural gas futures rose steadily last week, reaching $3.563—just shy of the October high of $3.573—before retreating on Friday to close at $3.129. The market recorded a strong 10.84% weekly gain, driven by colder weather forecasts and robust demand expectations. However, Friday’s sell-off highlighted the market’s sensitivity to oversupply concerns and profit-taking.
Did Colder Weather Predictions Boost the Rally?
Colder-than-usual weather forecasts were a major catalyst for the week’s rally. Maxar Technologies projected a sharp temperature drop from November 28 to early December, which is expected to drive higher heating demand. Traders responded to this outlook by pushing prices above the weekly pivot point at $3.0435 and targeting the October high. Strong heating degree day (HDD) data reinforced expectations for increased consumption, setting the stage for robust gains earlier in the week.
What Caused the Late-Week Reversal?
After five consecutive days of gains, natural gas prices reversed sharply on Friday, as traders moved to book profits. The sell-off coincided with slightly warmer adjustments in weather models, which reduced the intensity of projected heating demand. Additionally, prices faced resistance at $3.563, near the October high, prompting a technical correction. Analysts noted that the week’s rally may have overextended, with the late-week drop reflecting a more cautious outlook ahead of the weekend.
Are Supply Concerns Capping Gains?
Supply-side factors continued to weigh on the market. The EIA reported storage levels at 3,969 Bcf as of November 15, 239 Bcf above the five-year average, signaling ample inventories to meet winter demand. U.S. dry gas production also increased slightly to 101.1 Bcf/day as higher prices incentivized producers. Baker Hughes reported a marginal rise in active drilling rigs, which could lead to further supply growth if prices remain elevated.
What Can Traders Expect This Week?
The weekly pivot at $3.0435 will be critical in determining this week’s price direction. A sustained move above this level could lead to a retest of the October high at $3.573, with $4.226 as the next upside target. Conversely, a sustained move below $3.0435 would signal a bearish shift, potentially leading to a retest of $2.514. While colder weather forecasts suggest bullish potential, elevated storage and increased production may limit significant price gains.
About the Author
James Hyerczykauthor
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.
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