Natural Gas

Natural Gas Price Fundamental Daily Forecast – Next Major Move Hinges Upon 10-15 Day Weather Forecasts

Natural gas futures are trading higher in Monday’s limited holiday trade. The market gapped on the daily chart, which could be an indication of two things. One, traders are reacting to a price surge in the cash market, and two, the weather forecast for the end of the month remained unchanged, meaning a break in the intense cold is coming.

At 14:20 GMT, March natural gas futures are trading $2.997, up $0.085 or +2.92%.

Traders know it’s cold. The current arctic conditions have been priced into the markets for weeks so there are no surprises. Cash market prices are going through the roof because of the huge heating demand. Futures traders are reacting differently. They are tracing the spot market higher, but without the same volatility.

When it’s extremely cold like it is now, users will pay anything to get enough natural gas to meet demand. But futures traders are focusing on the weather at least 10 to 15 days down the road, and the outlook is different. We could be going through the worst of the cold in much of the United States so spot prices are likely to remain firm. But as temperatures start to rise and the forecasts start to give a clearer picture of the events at the end of the month and into early March, cash prices will collapse. This could take futures prices sharply lower.

While bullish traders are reading the headlines and watching The Weather Channel, stubborn bearish short-sellers are standing firm. A new forecast, calling for intense cold at the end of the month and into the first week in March, will be necessary to drive prices sharply higher from here.

Natural Gas Intelligence (NGI) Weekly Spot Gas National Average soared to $16.825 on Friday, up $13.255 on the week, but don’t expect futures to run up to meet the spot price. If the forecasts are right then spot prices are more likely to collapse to the futures price. The short-sellers are hoping the futures market collapses with spot prices.

Short-sellers are confident in holding their positions because they believe storage levels are sufficient to get the country through winter even with the brutal cold.

It all comes down to the latest model projections. As of Friday, the models show the cold subsiding by the last week of February, with conditions currently forecast to return over most of the United States.

The early price action on Monday seems to be indicating little change in the forecasts. If they had shifted to the colder side then prices would be a lot higher than they are shortly after the opening.

The market still has a chance of surging to the upside, but that move will be determined by the midday forecasts.

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Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.