Natural Gas Price Fundamental Weekly Forecast – Demand Expected to Ease by Mid-Week
Natural Gas futures gapped higher last Monday, setting in motion a strong short-covering rally. The catalyst behind the rally was a forecast for below average temperatures in key heating demand areas.
January Natural Gas settled at $3.306, up $0.323 or 10.83%.
Although temperatures are forecast to return to average to above average from early next week to Thanksgiving on November 23, last week’s price action may have officially signaled the start of the winter heating season which may mean we’ll be looking at an upside bias for several months.
According to the U.S. Energy Information Administration, domestic supplies of natural gas rose by 15 billion cubic feet for the week-ended November 3. This figure exceeded expectations from S&P Global Platts which called for an increase of 12 Bcf. However, it matched the Reuters estimate of 15. Others had the estimate as low as 8 Bcf and as high as 24 Bcf.
The EIA report also showed stocks totaled 3.790 trillion cubic feet, about 2% below the five-year average.
According to Platts, last week’s rally was supported by below-average temperatures in several key demand areas. Demand in these areas hit 17.5 Bcf/d, about 4.3 Bcf/d above the previous seven-day average.
Demand levels throughout the first 10 days of November averaged 76.5 Bcf/d, nearly 9.7 Bcf/d above the same strip in November 2016, putting the market in the position to see a withdrawal in the upcoming storage report.
In other news, hedge funds and other money managers cut their net long positions in the two main futures and options contracts by almost half to 1,408 bcf by the end of October from 2,693 bcf in September.
Portfolio managers held just 1.58 long positions for every short on October 31, compared with 2.93 on September 19, and the lowest ratio for almost a year.
Forecast
Last week price action indicates that the bearish outlook for winter may have been overextended and that the market was ripe for a rebound.
The weekly chart pattern suggests we’re still in a rangebound market with support at $3.275 to $3.144 and resistance at $3.406 to $3.506.
The main trend will turn up on the weekly chart if buyers can take out $3.450. The downtrend will resume on a move through $2.983.
The cold blast is hitting this week-end as expected, but this has already been priced into the market. Besides, it is only a “cold blast” and not a “lingering cold system” or a “cold air dome”. This clearly indicates it’s a short-term event.
Although overall demand is expected to be high this weekend, it should begin to ease by mid-week and perhaps into the next week. Therefore, I have to conclude that we’ll be looking at a rangebound market this week.
This article was originally posted on FX Empire