Has The NatGas Rally Come To An End?

January Natural Gas futures are set to finish the week sharply higher for a third week after gapping higher on the opening for a second consecutive week. The price action suggests the market may be overbought by some technical measures. Confusion over the latest weather forecasts may also be encouraging investors to book profits ahead of the week-end.

Most of this week’s gains can be attributed to Thursday’s bullish U.S. Energy Information Administration’s weekly report that showed supplies of the heating fuel fell by 50 billion cubic feet for the week-ended November 25. This came out almost exactly as forecast by analysts. However, traders reacted with a strong response on the idea that back-to-back weekly drawdowns represent a bullish trend.

Total stocks now stand at 3.995 trillion cubic feet, up 24 billion cubic feet from a year ago and 235 billion cubic feet above the five-year average. Looking at it another way, that’s about 0.6 percent above levels from last year and 6.25 percent above the five-year average.

It seems to me that confusion over the use of “cooler” and “colder” temperatures in the forecasts is affecting the price action.

After struggling through an unusually warm October-November time period, followed by cooler temperatures, new forecasts show colder temperatures spreading across most of the country starting next week. This is helping to reduce worries that a glut of supply will continue…