Natural Gas Price Fundamental Daily Forecast – Ripe for Short-Covering Rally Due to Oversold Conditions

Natural gas futures are edging higher on Monday, helped by oversold technical indicators and a surge in demand for crude oil. Hopes for less-aggressive U.S. interest rate hikes are also buoying financial markets and depressing the dollar. A weaker greenback makes dollar-denominated commodities like natural gas more affordable for investors holding foreign currencies.

At 12:40 GMT, March natural gas futures are trading $3.485, up $0.093 or +2.74%. On Friday, the United States Natural Gas Fund ETF (UNG) settled at $11.87, down $0.09 or -0.75%.

Natural Gas Starts Year with Biggest Weekly Dive in 31 Years

U.S. natural gas tumbled about 18% in the first week of January, the biggest slide on record to start a year, according to Refinitiv Eikon data.

“January 2023 is off to the warmest start in more than 15 years,” analysts at energy consulting firm EBW Analytics told customers in a note.

Will Oversold Conditions Offset the Widow Maker?

With futures down about 44% over the past three weeks, its biggest three-week drop in history, according to Refinitiv data, natural gas futures start the new week in oversold territory. The relative strength index (RSI) is below 30 for a seventh day in a row for the first time since 2019.

Meanwhile, the premium of futures for March over April, which the industry calls the widow maker, fell to a record low of 7 cents per mmBtu last Thursday as some in the market gave up hope that extreme cold would cause prices to spike later this winter.

The gas industry calls the March-April spread the “widow maker” because rapid price moves resulting from changing weather forecasts have knocked some speculators out of business.

The market uses the March-April spread to bet on the winter heating season when demand for gas peaks.

Given the oversold conditions, traders should watch this spread for any fast adjustments that could be indicating a bottom is forming.

Short-Term Outlook

We don’t expect to see a change in trend to up, but we could see a strong short-covering rally due to oversold conditions and stronger demand for dollar-denominated assets like natural gas due to the weaker greenback.

Furthermore, although the weather is expected to be quite warm over the next 15-days, there is a possible colder pattern forming. According to the European model, a colder pattern could form around Feb. 3 – 10 if frosty air over Canada finally advances back into the United States.

It’s quite far out but should be monitored because any shifts toward cold could shake out some of the weaker shorts.