Natural Gas Price Fundamental Weekly Forecast – Expect More Short-covering if European Models Confirm Mid-Term Forecasts

After consolidating since January 3, natural gas futures finally blasted through short-term resistance at $2.932 to change the trend to up on the daily chart. Aggressive speculative buying and short-covering combined to fuel the breakout. The catalyst behind the surge was weather models showing a shift to colder temperatures late in the month.

Last week, March natural gas settled at $2.945, up $0.040 or +1.38%.

Daily March Natural Gas
Daily March Natural Gas

Weekly Recap

U.S. Energy Information Administration Weekly Storage Report

The EIA reported on January 10 a 91 Bcf withdrawal from U.S. gas stocks for the week-ended January 4. This number came in on the strong side of the estimate needle, but failed to generate any major buying interest. Trader consensus showed an expected 84 Bcf withdrawal. The five-year average decline stands at 187 billion.

The data, also showed a revision that resulted in decreased working gas stocks of about 4 billion cubic feet in the Mountain region last week. That brought the actual weekly withdrawal down to 87 Bcf.

Total stocks now stand at 2.614 trillion cubic feet, down 204 billion cubic feet from a year ago, and 464 billion below the five-year average, the government said.

Short-Term Weather Forecast

According to NatGasWeather for January 11-17, “Cold conditions will cover the Great Lakes and Northeast the next couple days with lows reaching the 0s to 20s for strong demand. A strong weather system with rain and snow will track across the South Plains today and then across the east-central US/Southeast/Tennessee Valley/Mid-Atlantic Coast Saturday-Sunday. The West will see a mix of mild and cool as weather systems track inland but with limited amounts of cold air. Next week will bring mild conditions across the southern 2/3rds, but with glancing shots of cold across the northern 1/3. Overall, national demand will be moderate/high late this week into early next week.”

Forecast

The week should begin with leftover upside momentum from last week if the major weather models continue to show a shift toward colder temperatures for key demand areas during the latter half of January.

The guidance this week will come from the mid-range weather forecast from NatGasWeather. They ended the week by saying, “The risk going into the week-end break is how much frigid polar air over Canada January 19-26 will push across the border into the US. The overnight GFS model is again quite a bit colder/more aggressive than the European model, which shows colder air arriving January 19-21 and January 24-25, but with a decent break January 22-23. It would go a long ways for the bullish case if the European model saw the pattern as cold as the GFS. This makes today’s (Friday’s) mid-day and afternoon data important to see which way the data trends before the weekend break. Clearly, a dangerous weekend to hold depending on if cold pushes across the border deep into the US (bullish) or only provides glancing blows (neutral to only slightly bullish).”

The report is saying demand is likely to continue to rise over the short-run if there is a double blast of cold January 19-21 and January 24-25. However, it’s only one forecast and it needs to be confirmed by the European model.

The forecast suggests we could see a series of price spikes. First to the upside, then to the downside then back up again. The extent of the last move will be determined by the forecasts for the last week of the month and early February.

This article was originally posted on FX Empire

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