Natural Gas Price Fundamental Daily Forecast – Weather Model Guidance Remains Volatile

Natural gas prices continue to add to recent gains early Tuesday on the back of volatile weather forecasts that can’t seem to pinpoint when the current cold weather snap will end. Professionals and speculators are also probing the upside in an effort to find a value area that could help determine the top end of the market.

At 1354 GMT, December Natural Gas is trading $3.96, up $0.172 or +4.54%.

Although the market is a strong uptrend it’s still subject to wild price swings. Take Monday’s price action for example. According to Bespoke Weather Services, the early morning gains were attributed to strong cash prices, the midday dip and afternoon gains corresponding with shifts in the latest midday and afternoon guidance.

Due to the sensitivity in the cash market and the uncertainty over the duration of the cold weather, we could see similar price action on Tuesday.

Bespoke said, “Model guidance remains incredibly volatile, and we still see prices almost solely trading off individual weather model runs and morning cash prices,” the firm said. “This trend seems unlikely to stop” Tuesday given that heating degree days are expected to peak Wednesday and drive even stronger spot prices.

Prices could “quickly fall on any long-range warming trends,” but “there is simply too much blocking downstream on long-range model guidance to get bearish here,” according to Bespoke. “This makes it less likely that any significant cash rally” Tuesday “gets as heavily sold into.”

Forecast

We’re still leaning to the bullish side because the European weather model is still calling for cold temperatures until November 22 – 25. Once again, if these dates change, prices will be impacted.

The bullish tone will continue if the weather models call for the cold to extend beyond November 25. Profit-takers could hit the market if the weather models indicate a break in the pattern sooner than expected.

Traders should also be concerned about market volatility which may not all be related to the weather forecasts. Some of the volatility may be driven by price discovery. In other words, traders are still trying to find value so that they can establish a fair price.