Natural Gas Prices Forecast: Volatility Spikes Amid Rollovers, Weather Uncertainty

Highlights

• A perplexing week for NatGas traders as futures gap lower, casting doubt on last Friday’s bullish run.
• A bearish short-term outlook looms, as key players seem poised to short rallies amid abundant supply.
• Low trading volumes add another layer of uncertainty to a volatile NatGas market.
• Erratic weather forecasts muddle supply and demand dynamics, contributing to market gaps.

Volatility Rocks Natural Gas Futures

Natural gas futures have experienced significant volatility, gapping sharply lower and leaving traders questioning whether last Friday’s rally was a false breakout. Market conditions appear to be influenced by a mixture of contract rollovers, low trading volumes, and ever-changing weather forecasts, throwing supply and demand dynamics into uncertainty.

Contract Rollover and Market Volatility

Last week, natural gas futures tumbled by about 2% ahead of the contract expiration, despite forecasts of extreme cold in the near future. The front-month contract for November closed 1.6% lower at $3.164 per mmBtu, while futures for December inched up about 0.2% to settle around $3.48. Market participants often witness higher volatility around contract rollovers, evidenced by trading volumes as low as 3,779 compared to a yearly average of 129,500 front-month contracts.

Supply and Demand Outlook

According to financial firm LSEG, average gas output in the Lower 48 U.S. states hit a record high, indicating a well-supplied market. Output rose to an average of 103.9 billion cubic feet per day in October, up from 102.6 bcfd in September. Despite increased production, weather conditions play a pivotal role in influencing demand, with forecasted temperatures fluctuating from warmer than usual to colder than average.

Weather Forecasts and Price Action

Weather conditions remain a significant factor, influencing both supply and demand. Meteorologists expect temperatures to drop in parts of the country like Denver, contrasting with above-average temperatures in the eastern U.S. The changing forecasts could be behind the current price action, as significant weather shifts often lead to market gaps.

Short-Term Outlook: Bearish Momentum

Considering the unpredictability around weather forecasts, contract rollovers, and low volumes, the short-term outlook for natural gas appears bearish. Major short sellers are likely to capitalize on rallies, signaling an expectation of an amply supplied winter market.

The market is navigating through a web of uncertainties, from contract expirations to erratic weather forecasts, making it crucial for traders to stay vigilant.

Technical Analysis

With the current daily price of Natural Gas standing at 3.332, the market appears to be situated in a relatively neutral zone between its minor support at 3.184 and minor resistance at 3.434.

The asset is trading above both the 200-day moving average of 2.591 and the 50-day moving average of 2.872, signaling underlying strength. Main support and resistance levels stand at 3.002 and 3.793 respectively, giving traders a broader range to watch.

The market’s positioning above key moving averages and within a moderate range of support and resistance levels suggests bullish sentiment although the volatility fueled by today’s gap-lower opening is raising the cautious flag.