Natural Gas Price Fundamental Daily Forecast – Price Action Indicates Uncertainty Ahead of Midday Forecasts

Natural gas futures are trading lower on Wednesday, but prices remain inside yesterday’s range suggesting investor indecision and impending volatility. Since we are in a weather-driven market, it’s easy to guess that an overnight shift in the short-term forecasts may be behind today’s early weakness.

At 12:21 GMT, February natural gas futures are trading $2.639, down $0.063 or -2.33%.

Today’s price action suggests that speculative buyers may be taking a little off the top ahead of Thursday’s government storage report, or bearish trend traders are getting ready to announce their presence if the midday forecasts show any hint of warmer than normal temperatures over the near-term.

The key focus for traders the last few session has been on whether the January 16-19 time frame can deliver slightly colder temperatures. Bullish traders are hoping the colder trend begins earlier than expected and extends behind the first estimate. Bearish traders may be biding their time since overall winter forecasts still point toward much warmer than normal temperatures this winter.

As traders, we have to get used to dealing with up and down price spurts since there is nothing in the outlook at this time to suggest a lingering cold pressure dome is forming. Cold pockets just continue to form then go away. So we’re likely to continue to see “buy the dip, sell the rally” price action.

NatGasWeather said on Tuesday, “No major changes to the timing of major features to impact the U.S. over the coming 15 days, with conditions too mild the rest of the week, a bump in demand this weekend into the start of next week.

The pattern is expected to shift “back to light demand January 13-17 before what should finally be a cold enough pattern January 18-20 as Canadian air pushes more aggressively into the Midwest and Northeast.”

Coming off “much warmer than normal” temperatures so far this winter, it will be “important this colder January 18-20 period not back down and disappoint,” the firm said.

Daily Forecast

The early price action, or inside move, could be indicating the short-term pattern is in transition and ripe for a pullback. The charts indicate the key level to watch early is $2.579. A failure to hold this level will be the first sign of weakness with the next support a pair of 50% levels at $2.519 to $2.498.

We expect to see counter-trend buyers come in on a test of $2.519 to $2.498. If $2.442 fails then weak speculators may throw in the towel, leading to a steep decline.

Holding $2.579 then taking out $2.732 could create enough momentum to challenge the December 22 main top at $2.775. Taking out this level with strong volume will be bullish if accompanied by a bullish weather forecast. Basically, on any weather driven rally, we’d like to see real buying rather than short-covering.