Looking to the Futures

Natural gas prices retraced to start the week following a significant rally on Friday. Forecasts for frigid US temperatures caused expectations for an uptick in nat-gas heating demand, pushing the contract to its highest level in nearly three years. US electricity output increased year-over-year, giving fuel to last Friday's fire. Increased dry gas production in the lower 48 and reduced demand last week were bearish factors for prices. Last Thursday's weekly EIA report saw a smaller draw on inventories than expected and could be considered a bearish factor for natural gas.

Natural gas gave up all its gains from Friday and then some after weather forecasts shifted over the weekend. Nat-gas heating demand was drastically reduced with forecasts showing temperatures warming mid-month across the US. Atmospheric G2 stated the forecast shifted marginally colder over the eastern and southern parts of the US for December 18^th to the 22^nd, but significantly warmer elsewhere. 

US electricity output increased year-over-year, which could provide some support for natural gas prices. According to the Edison Electric Institute report last Wednesday, electricity output in the lower-48 rose +2.11% y/y to 76,459 GWh in the week ending November 29^th. The US electricity output in the 52-week period ending November 29^th increased +2.99% y/y to 4,289,746 GWh.

According to BNEF, dry gas production in the lower-48 increased +8.33% y/y on Monday to 113.1 bcf/day. US demand increased +30.1% y/y to 114.7 bcf/day on Monday. Estimated LNG net flows to US LNG export terminals increased +1.0% w/w to 18.0 bcf/day on Monday. 

The EIA report last Thursday was bearish for natural gas prices with inventories dropping -12 bcf, smaller than the expected draw of -18 bcf in the week ending November 28^th. Inventory draws were -43 bcf below the normal reduction for the 5-year weekly average for this time of year. As of November 28^th, inventories are down -0.4% y/y and +5.1% above the 5-year seasonal average.

The Baker Hughes report from last Friday shows the number of active US nat-gas drilling rigs fell by -1 to 129 in the week ending December 5^th.

Looking at the daily chart for the Natural Gas Futures January 2026 (/NGF26) contract we can see that sellers stepped in yesterday to offset the gains seen last Thursday and Friday. Volume on yesterday and Friday was significantly above the average, which does not give a strong indication of specific sentiment with the large upside move being followed by a sharp decline. The contract traded off the 20-Day Simple Moving Average in late November and could look to test that level moving forward. 

The Daily Technical Summary from Hightower Research shows support levels at 5.067 and 4.813 with resistance levels at 5.535 and 5.750. 

According to the CFTC Commitment of Traders report released October 28^th managed money traders decreased their long position by -8,971 contracts and decreased their short position by -13,184 contracts. At the time of this report, managed money traders were net short -41,704 contracts. 

The 14-Day Relative Strength Index at 55.05% indicates slightly more buyers than sellers, but the contract has not moved into overbought territory.

20-Day SMA                    4.779

50-Day SMA                    4.478

200-Day SMA                  4.730

14-Day RSI                      55.05%

Implied Volatility             64.67%

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