Natural Gas Prices Forecast: Futures Rise as Speculators Eye Frigid Forecast

Key Points

• Natural Gas futures experience upward momentum driven by weather forecasts.
• Traders anticipate heightened market volatility due to contrasting weather models.
• Short-term bullish trend in natural gas futures amid supply concerns and weather-induced demand.

Natural Gas Futures Edge Higher on Friday

On Friday, natural gas futures are edging higher, continuing the upward momentum from Thursday. This increase is being closely monitored by traders, especially in light of the impending weekend and its potential weather developments.

Weather Forecasts and Market Implications

At 11:52 GMT, Natural Gas futures are trading at $3.122, up by $0.025 or +0.81%. The market’s attention is firmly on the upcoming weather forecasts. NatGasWeather predicts a strong demand surge due to an Arctic blast across the US, which could bring unusually low temperatures to regions like Texas. Contrarily, European Centre (EC) weather models indicate a possible easing of conditions later in January.

Market Volatility and Trading Considerations

Traders focusing on weather-driven strategies should brace for possible market volatility at the beginning of next week. Given the forecasts, the risk might be greater for those holding short positions at the end of Friday’s session. The full market reaction to the weekend’s weather may only become clear on Tuesday, after the U.S. holiday on Monday.

Recent Market Trends

Recently, U.S. natural gas futures saw a significant 6% increase, on track for a two-month high. This rise is mainly due to a greater-than-expected withdrawal from storage and predictions of extreme cold weather, which are anticipated to elevate gas demand to record levels. According to the EIA, the withdrawal for the week ending Jan. 5 was a substantial 140 bcf, surpassing analysts’ forecasts.

Production Levels and Demand Outlook

In January, gas production in the Lower 48 states has been reduced, with daily output levels dropping. This decrease in production, coupled with the expected increase in heating demand due to the colder weather, suggests a tightening in supply.

Short-Term Market Forecast

Given the current lower production levels and the anticipated spike in demand from the cold weather, the natural gas market is showing a bullish trend in the short term. Traders should keep a close watch on the evolving weather patterns and storage reports to effectively strategize in this market scenario.

Technical Analysis

The current daily price of Natural Gas Futures stands at 3.126, slightly higher than the 200-day moving average of 3.078 and comfortably above the 50-day moving average of 2.781.

While there are no discernible trend lines in play, we observe significant support at 2.874 and minor support at 3.056, with resistance levels at 3.315 and 3.516. This data suggests a market displaying resilience above its moving averages, implying a cautiously bullish sentiment.

The absence of clear trend lines makes it vital to monitor these support and resistance levels as they may influence future price actions. That being said, we see a decisive uptrend developing on a sustained move over the 200-day moving average, and a resumption of the downtrend on a sustained move under the 50 day moving average.