Natural gas futures witnessed a significant surge on Monday, with key technical levels being crossed. The 50-day moving average at $3.115 and the 50% retracement at $3.118 became immediate support zones. This upward movement sets the stage for potential further rallies, with the next major resistance at the 200-day moving average at $3.383, followed by $3.444, a crucial pivot point. A breach of $3.444 could potentially open the door to a rally towards the main top at $3.647.

Unraveling the Intricacies of Daily Natural Gas Markets

Technical Breakout and Support Zones

Natural gas futures on Monday showed remarkable strength as they surged past critical technical levels. The 50-day moving average at $3.115 and the 50% retracement at $3.118 acted as strong support, indicating a potential shift in market sentiment. This breakout above these levels suggests that the market may be entering a new phase of upward momentum. Traders are closely watching these support zones as they provide a crucial reference point for future price movements. If the market manages to hold these support levels, it could pave the way for further gains. However, a failure to do so could lead to a significant pullback.The 200-day moving average at $3.383 now stands as the next major resistance level. Breaking above this level would be a significant milestone and could trigger a more substantial rally. Additionally, the key pivot at $3.444 holds importance as it represents a potential turning point. If prices can overcome this resistance, it could open up the path to the main top at $3.647.

Colder Weather and Demand Outlook

Over the weekend, weather models took a turn towards colder temperatures. Heating degree days (HDDs) increased by 20 in the Global Forecast System (GFS) and over 10 in the European model. This change is particularly significant as a cold front is forecasted to sweep across the U.S. East and Midwest from December 20-23. Temperatures during this period are expected to drop into the 10s to 30s, with lows reaching as cold as -0s in some areas.Although milder conditions dominate much of the 15-day forecast, the new colder pattern is less bearish than earlier expectations. This indicates that the demand for natural gas for heating purposes may increase, providing some support to the market. However, it remains to be seen how long this colder weather will persist and how it will impact overall demand.

Oversupply and Headwinds

Production remains at a high level of over 104 Bcf/day, while the latest EIA report showed a smaller-than-expected 30 Bcf withdrawal. Total storage currently stands at 3,937 Bcf, which is 284 Bcf above the five-year average. These figures highlight the ongoing concerns about oversupply in the natural gas market, even as seasonal demand for heating intensifies.The high production levels and relatively large storage levels pose a challenge to the market, as they put downward pressure on prices. Traders will need to closely monitor inventory reports and production data to assess the balance between supply and demand. Any significant changes in these factors could have a significant impact on market sentiment and price movements.

Market Forecast and Risks

The short-term outlook for natural gas futures is cautiously bullish, supported by the strong technical breakout above $3.115 and the colder weather forecasts. Prices are positioned to test the resistance at $3.383 and $3.444, with a potential move towards $3.647 if demand expectations continue to improve and technical momentum holds.However, downside risks remain. If support at $3.115 fails, the market could retrace to $2.993, and if selling pressure intensifies, prices could potentially test $2.762. A failure to sustain the colder weather patterns or further underwhelming storage withdrawals could weaken bullish sentiment and lead to increased selling pressure. Traders must closely monitor weather updates and inventory reports to accurately gauge market direction and make informed trading decisions.