Natural gas futures are trading lower on Friday as investors continue to react to an unimpressive storage withdrawal and mixed signals from the latest weather models. The early price action indicates that prices are likely headed toward a short-term technical retracement area at $3.089 to $3.014. This area is critical to the short-term outlook. Since the main trend is up according to the daily chart, value-seeking buyers may step in on a test of this zone. However, they are going to need some help from the weather forecasts.
At 1104 GMT, March Natural Gas is trading $3.110, down $0.064 or -2.02%.
Short-Term Weather Outlook
According to NatGasWeather for January 18-24, “High pressure will dominate much of the southern US one last day with warm highs of 60s and 70s before colder air arrives this weekend where lows will drop into the 20s and 30s. A strong weather system with heavy rain and snow, but more importantly frigid air, will advance across the Plains and Midwest the next couple days, then across the Ohio Valley and East this weekend with lows of -20s to 20s. A brief milder break will follow mid-next week before another frigid cold shot sweeps across the same regions. The West will see a mix of mild and cool as weather systems track inland. Overall, national demand will be moderate-low today then increasing to high-very high this weekend.”
U.S. Energy Information Administration Weekly Storage Report
According to the EIA report released on Thursday, domestic supplies of natural gas fell by 81 billion cubic feet for the week-ended January 11. Analysts were looking for a consensus decline of 77 billion cubic feet. However, it fell between the 76-82 Bcf range of guesses. This also came in well-below the five-year average of a 218 Bcf withdrawal.
Total stocks now stand at 2.533 trillion cubic feet, down 77 billion cubic feet from a year ago, and 327 billion below the five-year average, the government said.
Looking at the daily chart, trader reaction to the short-term retracement zone at $3.089 to $3.014 should set the tone today.
According to NatGasWeather, “Make no mistake, both important weather models (US and European) see a series of frigid cold blasts lined up this weekend through the rest of the month, just with breaks in between”.
“Overall, we continue to view weather patterns as at least moderately bullish, but any decent milder trends would be met with big disappointment, while anything colder would rapidly increase levels of intimidation/impressiveness.”
“This means every weather model run will be closely scrutinized by the markets for the direction of temperatures trends.”
The market is setting up to test a value zone at $3.089 to $3.014. In order to attract buyers on the move, the weather models are going to have to agree on the return of cold weather. Otherwise, we’re likely to see a sideways-to-lower trade over the short-term.