Bears in Firm Control after Warmer Weather Forecasts

Natural Gas Talking Points

  • Natural gas bears in firm control following warmer than expected forecasts
  • EIA inventory storage levels remain supportive of lower prices in the near term
  • Technical structure offers little for upside movement in the heating gas’s chart

Natural gas prices fell to a new multi-month low earlier this week. NYMEX prices are now only days away from securing the largest monthly drop since December 2018, with the current monthly loss just over 19%. The heating gas has seen exceptionally bearish movement since early November, as warmer than average temperatures across much of the United States have fueled bearish sentiment.

Prices don’t appear poised for a near-term recovery with the most recent 8-14 day temperature outlook from the NWS showing higher than average temperatures across much of the nation. However, Alaska and the Southwestern US is slated to see average to below-average temperatures over the next two weeks.

NOAA 8-14 Day Outlook Temperature Probability

Source: NOAA

Last week, the Energy Information Administration’s (EIA) Weekly Natural Gas Storage Report triggered price declines after reporting a net weekly decrease of 152 Bcf (billion cubic feet) for the week ending December 18, according to the DailyFX Economic Calendar. While inventory drawdowns are usually a bullish driver for commodity prices, storage levels are substantially elevated from the current year by the tune of 278 Bcf on a YoY basis, and 218 higher than the 5-year average, according to the EIA.

EIA Inventory Report

Source: EIA.GOV

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Colder weather outlooks in January will be needed to drive the demand outlook with the current bearish fundamental landscape likely keeping prices near monthly lows. Outside of temperature forecasts, traders will key in on the next weekly EIA inventory report expected to cross the wires on Thursday.

Natural Gas Technical Forecast:

The aggressive selloff over the past week has prices up against trendline support from the 2020 swing low. The move lower may accelerate further, however, with the MACD histogram’s bearish increase hinting the move may have more fuel left. A drop would challenge trendline support, with a break below that seeing the 200-day Simple Moving Average coming into play.

To the upside, prices will face an uphill battle with a large gap looming from the recent decline. The 61.8% Fib retracement from the September-October move may serve as a target for bulls to reestablish a level of prior support. Still, any climb higher will likely be slow and hard fought given the fundamental backdrop.

Natural Gas Futures Daily Price Chart

Natura Gas Price Chart

Chart created with TradingView

Natural Gas TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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