Natural Gas Price Fundamental Daily Forecast – Revised Weather Forecasts Have Traders On-Edge

Natural gas futures jumped nearly 5%, strengthening for the third day in a row to a one-week high on Friday. The catalysts behind the rally were forecasts for much colder weather and higher heating demand through late December than previously expected. The move was primarily driven by short-covering by traders fearing getting caught on the wrong side of bullish weekend weather.

On Friday, January natural gas futures settled at $6.245, up $0.283 or +4.75%. The United States Natural Gas Fund ETF (UNG) finished at $19.26, up $1.01 or +5.53%.

Huge Gains in West Coast Spot Markets

Natural gas was also lifted on Friday by strong gains in the spot market. According to Reuters, U.S. West Coast power and gas prices have more than doubled over the past couple of weeks – with gas hitting multi-year highs – as freezing weather and snow blankets parts of California and gas pipeline outages and constraints limit flows of fuel from Texas.

The colder weather should force utilities to pull more gas from storage in coming weeks.

Prices Recover Despite Bearish News from Freeport LNG

With bullish weather news moving to the forefront, traders largely shrugged off the surprise announcement from Freeport LNG that it will delay the planned restart of its liquefied natural gas (LNG) export plant in Texas from mid-December to the end of the year.

The futures contract posted a strong recovery last week, finishing only 0.57% lower after dropping about 11% the previous week.

The delay should keep LNG exports below record levels hit in March and leave more gas in the United States for domestic use. This is also the primary reason why weather-driven gains are likely to be limited.

Before Freeport LNG was hit by an outage on June 8, traders were bracing for a natural gas shortage this winter. Since then a combination of a mild summer, lower demand from Europe and increased production has allowed the U.S. to replenish storage levels.

Gas stockpiles were about 1.6% below the five-year (2017-2021) average for this time of year.

Gap Up or Gap Down: To Be Determined by Weekend Forecasts

Friday’s close near the high of the session has put the market in a position to gap higher on Monday. This is likely to happen if the weekend weather forecasts confirm the expected cold temperatures. However, uncertainty ahead of the close on Friday also has some looking for a possible gap lower opening.

On Friday, the data was starting to show signs that the coming pattern may not be as cold as initially forecast, according to Natural Gas Intelligence (NGI). The Global Forecast System (GFS) overnight Thursday trended eight heating degree days (HDD) warmer for Dec. 16-22, but the European Centre (EC) trended seven HDDs colder.

These revisions has likely put traders on edge this weekend.

Technically speaking, a gap-higher opening will put $6.757 – 7.092 on the radar. A gap-lower opening could lead to a test of last week’s low at $5.337.

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