Natural gas futures are edging lower on Tuesday after running into resistance earlier in the session. The market continues to be well-supported by near-record export demand and driven higher by calls for intensifying cooler temperatures. Today’s early price action, however, suggests the weather-related news may have been fully-priced into the market. This could lead to a short-term pullback.
At 14:12 GMT, June natural gas futures are trading $2.803, down $0.015 or -0.53%.
Short-Term Weather Outlook
According to NatGasWeather for April 20 – April 26, “Several colder than normal weather systems will track across the U.S. through the weekend with rain, snow, and chilly lows of 20s to 40s for strong national demand, coldest over the Rockies, Northern Plains/Midwest, and interior Northeast. The southern U.S. will also see bouts of showers, although still mostly comfortable with highs of 60s to 80s. The West will be warm with highs of 60s to 80s besides hotter 90s Southwest deserts. Overall, demand will be high versus normal most of the next 7-days.”
Bespoke Sees Cooler Shift
Natural Gas Intelligence (NGI) wrote that coming off a strong week in which Nymex futures put up gains on all but one day, the cooler shift in the latest weather models added to the momentum. Bespoke Weather Services said although the European model was the first model to show the chillier weather lasting through the end of the month, the other weather models have also caught on to the changes. The firm expects demand to remain above normal for the next 15 days, but it pointed out that this is a low demand time of year.
“Still, demand is demand, and the change is on the bullish side of the spectrum, thanks mostly to increasing the intensity of this week’s shot of cooler air,” the forecaster said.
The pattern may turn back warmer toward the beginning of May, although none of the modeling currently shows anything extreme that would lead to a notable ramp-up of cooling degree days. That said, Bespoke and other forecasters do expect another hot summer this year.
Technically, the main trend is up according to the daily swing chart. The market confirmed the uptrend earlier in the session, but by turning lower, it has put itself in a position to post a potentially bearish closing price reversal top.
The main range is $3.082 to $2.521. June natural gas is currently testing its retracement zone at $2.802 to $2.868. This zone is potential resistance. It’s also controlling the near-term direction of the market.
The direction of the June natural gas futures contract into the close is likely to be determined by trader reaction to $2.818.
A sustained move over $2.818 sets up the possibility of a rally into the 61.8% level at $2.868. A sustained move under $2.818 could signal the start of a short-term correction of the rally from $2.534.
A close under $2.818 will form a closing price reversal top. If confirmed then look for the start of a 2 to 3 day correction.