Natural Gas Price Fundamental Daily Forecast – Heightened Volatility Expected with $5.269 – $4.956 Next Target

Natural gas futures are down for a third straight session early Tuesday after changing the main trend to down the previous session. The market is now testing its lowest level since September 27 with the early weakness suggesting the downside momentum could intensify throughout the regular session.

At 08:24 GMT, December natural gas futures are trading $5.477, down $0.025 or -0.45%.

Volatility Fueling Huge Hedge Fund Losses

According to Natural Gas Intelligence (NGI), the Schork Group pointed out that daily volatility last week averaged about 81%, which equates to an approximate one standard deviation daily price change of $2,924/contract. Schork analysts said the record high prices that have materialized over the summer and into the fall has meant that traders that hedged their European gas exposure in June must be “sucking wind today.”

The firm noted that natural gas hedge fund Statar Capital LLC reportedly took a $130 million hit through the first half of September. Media reports subsequently indicated that commodity traders Glencore plc, Gunvor Group Ltd., Trafigura Group Pte Ltd. and Vitol Inc. also faced billions in margin calls on their short positions in the European and Asian markets, with some shops having to secure additional lines of credit and cut their positions to compensate for the volatility.

Short-Term Weather Forecast

According to NatGasWeather for October 12 to October 18, “A weather system with valley rains and mountain snows continues over the Mountain West with cool highs of 40s to 60s, lows of 20s to 40s. A second milder system will track across the Great Lakes with showers and highs of 60s and 70s.

Most of the rest of the U.S. will be nice to warm with highs of 60s to 80s besides locally hotter 90s in the far southern U.S.

The system currently over the Mountain West will eject and sweep across the Midwest later in the week, while heavy showers from a fizzling tropical system tracking into West Mexico streams into Texas.

Overall, national demand will be low to very low into the foreseeable future.”

Daily Forecast

Look for the volatility to continue as the weather starts to seep into the trading action.

The early price action on Tuesday indicates the market is likely to continue to weaken with $5.269 to $4.956 the next likely target zone. We’re looking for new buyers to step in on a test of this area, but if $4.879 is taken out, the market could accelerate to the downside.

Needless to say, $5.269 to $4.956 is a critical area on the daily chart.