Early December forecasts are trending softer as natural gas futures strengthen

Natural gas futures pared recent gains in early trade Tuesday as updated forecasts showed less cold hit the eastern Lower 48 in early December.

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After rallying 47.3 cents in the previous session, the December Nymex contract fell 15.8 cents to $6.618/MMBtu around 8:45 am ET.

The factors driving Monday’s price increase “were not clear,” according to NatGasWeather.

The company highlighted “the risk of a rail strike and the potential for a colder US pattern Dec. 1-7” as two possible explanations for the rally.

Looking ahead to the updated forecasts, after showing a “slightly warmer” trend Monday for the early December time frame, weather data extended warmer trends overnight, NatGasWeather said.

“Cold air is expected in the western and northern plains from November 29th to December 12th. 7 … Overnight weather data, however, failed to see cold air move east as aggressively December 1-7, leaving the southern and eastern US mild to fair most days, with highs of 40-70,” the said Company. “There will still be brief bouts of stronger demand in the Midwest and Northeast to start December to get closer to seasonal demand, but just not as cold as Sunday through Monday data showed.”

Meanwhile, ICAP Technical Analysis told clients it would focus on resistance for the December and January contracts after a “beautiful rally” in Monday’s session.

Despite gains earlier in the week, “the bulls are not out of the woods yet,” said ICAP analyst Brian LaRose.

“For the December contract that is about to expire, the bulls still have to surpass $6.865-6.899, $6.998-7.005 and $7.221 to have a chance of $7.591-7.732 or $8.012-8.186-8.295,” the analyst added. “For the January contract, the bulls need to surpass $7,299-7,312 and $7,378-7,389 and $7,501 to have a chance of $7,913-7,987, $8,012-8,186 or $8,448.”

In terms of fundamentals, LNG feed gas demand is hovering above the 12.0 Bcf/d mark, according to EBW Analytics Group estimates.

This is because “dry gas production continues to show no significant seasonal increase,” said EBW analyst Eli Rubin. “If production doesn’t pick up, tightening supply expectations could boost Nymex futures.”

This week’s Thanksgiving holiday and subsequent December contract expiry raises the prospect of heightened volatility into early next week, Rubin said.

“While large price swings are possible in either direction, we highlight the potential for a breakout to the upside over the next seven to 10 days,” Rubin said.

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