Natural gas futures fell double-digits on Monday, wiping out post-Thanksgiving holiday gains from the previous session. The catalysts behind the sell-off were forecasts calling for warmer-than-usual weather that could result in lower heating demand over the next two weeks.
At 21:17 GMT, January natural gas futures are trading $4.863, down $0.614 or -11.21%. This was the first trading day of the January futures contract as the front-month and it was the futures contract’s biggest daily percentage decline since January 2019.
New Refinitiv Weather Forecast Erases Previous Gains
Prices fell from the opening on Monday after data provider Refinitiv projected 321 heating degree days (HDDs) over the next two weeks compared with a 30-year normal of 366 HDDs for the period. HDDs, used to estimate demand to heat homes and businesses, measure the number of degrees a day’s average temperature is below 65 degrees Fahrenheit (18 degrees Celsius).
Refinitiv also reported that output in the U.S. Lower 48 states averaged 96.5 billion cubic feet per day (bcfd) so far in November, up from 94.1 bcfd in October and a monthly record of 95.4 bcfd in November 2019.
US Liquefied Natural Gas Still in Demand
The amount of gas flowing to U.S. LNG export plants averaged 11.4 bcfd so far in November, up from 10.5 bcfd in October as the sixth train at Cheniere Energy’s Inc’s Sabine Pass plant in Louisiana started producing LNG. That compares with a monthly record of 11.5 bcfd in April.
This suggests that demand is still strong for U.S. LNG from Europe and Asia.
Early Look at Thursday EIA Weekly Storage Numbers
Natural Gas Intelligence’s (NGI) machine learning model is predicting a net 58 Bcf withdrawal for the week ended November 26. That would compare bullishly with both the five-year average (minus 31 Bcf) and year-ago (minus 4 Bcf) withdrawals for the period.
January natural gas is trading on the weak side of a key retracement zone at $5.024 to $5.338, making it resistance. This area is controlling the near-term direction of the market.
Although Friday’s rally crossed to the strong side of this zone and even took out a main top, there was no follow-through to the upside which indicates bearish traders are looking for rallies to short.
The next major sign of weakness will be a break under $4.736 and a strong follow-through move. Our work suggests that $4.009 is a valid downside target.
This article was originally posted on FX Empire