Yahoo Finance Natural Gas Price Fundamental Daily Forecast – Large Build, Return to Normal Temps Could Drive Prices Below $4.00
Natural gas is trading nearly flat early Friday after yesterday’s blood bath completely reversed the previous day’s spike to a multi-year high. The inability to follow-though to the downside suggests the market may have found value. The tight range suggest that both buyers and sellers may have learned valuable lessons about chasing prices in either direction during a weather market.
At 1004 GMT, January Natural Gas futures are trading $4.033 or -0.010 or -0.25%.
The daily chart indicates the main trend is up. The current range is $3.199, the October 29 bottom, to the November 14 main top at $4.964. The market is currently testing its 50% to 61.8% retracement zone at $4.082 to $3.873. Trader reaction to this zone is likely to determine the next major move in the market.
To recap this week’s events, the market started firm as forecasts continued to call for cold weather until at least November 25. The market was also underpinned by historically low stockpiles. A short-squeeze spiked the market higher, producing the biggest one-day rally in 14 years and the highest closing price since 2014. This was followed by the sharpest one-day decline since February 2003.
Outside factors also contributed to the wild price action. There is speculation that the hedge funds that had been long crude oil and short natural gas for the winter were forced to liquidate their positions to meet margin calls and end-of-the-year redemptions.
U.S. Energy Information Administration (EIA) Weekly Storage Report
According to the EIA, U.S. natural gas stockpiles rose by 39 billion cubic feet in the week-ending November 9, exceeding the 34 billion cubic feet rise analysts and traders had forecast. Furthermore, the increase was more than double the injection for this time of year.
Nonetheless, total storage remains about 16% less than normal for this time of year. This news should continue to underpin prices until it goes away. If the winter is cold enough or if below average temperatures continue into the spring, we may even begin the summer heating season with a deficit.
Forecast
The price action this week brings to mind several factors. You can have the perfect storm of fundamentals, but you still have to have position management to make money.
Traders are probably going to look at this week’s high as an anomaly and consider the $4.00 as resistance. The charts are zeroing in on $4.082 to $3.873 as the key area to watch.
We could see an upside bias develop over $4.082 and a downside bias under $3.873.
The large build indicates that the market is well-supplied so any major change in the weather to the warm side could lead to a steep drop in prices.
This article was originally posted on FX Empire
