With a milder early December pattern in the latest forecasts arresting the market’s pre-Thanksgiving bullish momentum, natural gas futures were down sharply in early trading Monday.
The expiring December Nymex contract was down 42.3 cents to $6.601/MMBtu at around 8:40 a.m. ET. Around the same time, January was off 27.6 cents to $7.054.
Declines were even heftier when compared to pre-holiday trading. After surging higher ahead of the Thanksgiving holiday, futures retreated in Friday’s session, with the January contract tumbling 37.8 cents to settle at $7.330.
Prices continued to move sharply lower early Monday as analysts pointed to updated forecasts that advertised markedly less weather-driven demand compared to pre-Thanksgiving expectations.
As of early Monday, the near-term forecast had lost 24 gas-weighted heating degree days and 45 Bcf of natural gas demand versus pre-holiday forecasts, EBW Analytics Group analyst Eli Rubin told clients.
The weaker weather-driven demand outlook has “set a decisively bearish tone heading into today’s December contract final settlement,” EBW’s Rubin said.
As for potential bullish catalysts, there’s the possibility of a rail workers strike “as soon as Dec. 9,” and the Freeport LNG terminal could begin to “show signs” of returning to service in the coming weeks, according to Rubin.
“Today’s trading will be dominated by heightened volatility as December rolls off the board,” the analyst said. “Natural gas could begin to recover, however, as soon as later this week.”
Weather models over the weekend extended warmer trends for the first week of December, including by showing above normal temperatures over the southern and eastern portions of the Lower 48, according to NatGasWeather.
“However, much of the weather data favors a rather chilly U.S. pattern setting up Dec. 8-11,” a time frame where “colder trends were observed” in the latest model runs, the firm said.
However, it’s questionable whether traders will “actually believe a colder pattern will arrive” given the data “once suggested a rather cold U.S. pattern was coming” during the first week of December “only to have it reverse notably warmer,” NatGasWeather added.
Meanwhile, ICAP Technical Analysis analyst Brian LaRose pointed to “the ratio retracements associated with the $6.132 low” as potential support levels for the January contract.
“If this pullback is in any way corrective one of these retracements should be able to halt a slide,” LaRose said. “In the event these retracements are unable to stop a retreat we will have to quickly assess the potential for a completed a-b-c bear market correction and a test of the October lows.”
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