Natural gas futures are trading higher on Wednesday, but the market remains rangebound with an upside bias as traders continue to digest the latest weather models, which have flipped from bearish to bullish and back to bearish since Sunday.
Despite the shaky forecasts, the market remains supported by strong export demand and dropping supply, but that potentially bullish news hasn’t been able to encourage enough of the bigger players to abandon the short-side of the market to fuel a breakout to the upside.
At 13:08 GMT, January natural gas futures are trading $2.919, up $0.039 or +1.35%.
After a promising start on Tuesday due to forecasts calling for cold weather, the market turned lower as the models flipped to the bearish side. The news was just enough to limit gains with prices still well supported by traders betting on longer-term cold patterns. Cash prices also turned lower despite continued strong demand on the East Coast and the country’s mid-session.
Colder temperatures are still expected this week, which could provide support for cash prices. If this occurs then look for the futures market to be supported also.
EBW Analytics Group said that despite the bearish turn in the latest weather models, space heating demand in Weeks 1-3 still is expected to remain “far above recent levels.”
However, the folks at Bespoke Weather Services aren’t as optimistic about the upside potential. They don’t have the same confidence in the projected cold being teased in the long-range forecast given the unexpected shift in the latest European data.
They still see the potential for cold late in the 11-15-day outlook based on the European and American models, but still feel “less emphatically.” Furthermore, Bespoke sees some warmer weather before then. However, they are having trouble trusting the models until they see consistency in the forecasts.
According to Natural Gas Intelligence (NGI), Bespoke’s confidence is back below average. Their outlook for now sees the first half of December as variable and near the five-year and 10-year normal.
“But if the warmer shift is more than just a hiccup, downside risks increase,” Bespoke said.
The price action this week suggests uncertainty about the latest forecasts with traders holding prices inside a trading range.
Our work indicates resistance at $2.930 to $2.995 and a potential trigger point for an acceleration to the upside at $3.002 with $3.081 to $3.182 the next likely upside target.
On the downside, the support is $2.829 to $2.788.
The current setup suggests counter-trend buyers could come in on a test of $2.829 to $2.788, or aggressive trend traders could come in on a move through $3.002.
For a look at all of today’s economic events, check out our economic calendar.