Natural gas futures are trading lower early Monday with the market sitting inside a technical retracement area that should determine the next major move in prices. Volume and volatility are low as traders assess the latest weather forecasts that are calling for milder temperatures at mid-month across much of the country.
At 1000 GMT, January Natural Gas is trading $4.498, down $0.114 or -2.47%.
On Friday, NatGasWeather said, “The afternoon European model was little changed through the upcoming week, but it trended colder with a weather system across the Great Lakes and Northeast Dec. 8-11, opposite the milder trends advertised by the Global Forecast System.”
“All weather models continued to show a mild ridge setting up across much of the eastern two thirds of the country Dec. 12-15 for lighter demand,” the forecaster said.
“…For the weekend break, if the ridge shows signs it will only last through Dec. 16-17, the markets could see that as bullish” and indicating the milder trends won’t last, the forecaster said. “But if it looks to hold through Dec. 20, the markets could see that as lasting too long.”
The fact that January Natural Gas is trading inside a 50% to 61.8% retracement zone suggests trader indecision. This is probably being fueled by inconsistencies in the weather forecast.
Some traders are also saying the market may be materially oversupplied over the short-term and medium-term.
The new forecast from NatGasWeather for the December 3-9 time period says, “A strong cold front will push through the Plains into North Texas and portions of the South the next few days with lows of 20s and 30s. Cold air will cover the central and northern US most of this week with lows of 0s to 20s for strong demand. The East will be mild into Monday, then temperatures dropping the rest of the week as the upstream cold blast finally pushes through. Additional cold shots will follow next weekend over the South & East. The West will see a mix of cold and mild as weather systems tract through with rain and snow. Overall, demand will swing back to high this week.”
Technically, the direction of the market is likely to be determined by trader reaction to the short-term retracement zone at $4.431 to $4.557.
A sustained move over $4.557 will signal the return of buyers. A downside bias could develop on a move under $4.431.
The major support zone is $4.082 to $3.873.