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While January natural gas continues to trade in a relatively narrow range the price action has been weak which leaves the market still vulnerable to an eventual break below support at the $5.45 price level. While it is certainly too risky to be short natural gas at this time of year and down at these price levels, the market has shown little ability to react to bullish news or positive outside market influences. In fact, the market’s failure to rally off the bullish weather outlook has to be disappointing to the bull camp recently and that is certainly a reflection of the market’s bearish fundamental setup. So far concerns over weakening industrial fuel demand, fuel switching by power utility companies and comfortable winter storage levels has kept a lid on Jan natural gas prices. As a result, traders have so far remained relatively unconcerned over supplies, despite the weather forecast calling for frigid conditions in the Midwest through Dec 28th and cooler temperatures in the Northeast next week.

Since crude oil did manage to hold onto overnight gains, that could provide a temporary measure of support to natural gas. But weak readings in today’s economic reports also have the potential of adding to the negative sentiment in this market. Plans for declines in investment and production by major natural gas producers will eventually set the stage for a strong price recovery in natural gas, but this will take some time to unfold. In the mean time, as long as economic conditions continue to worsen natural gas is likely to remain vulnerable to more downside than upside price risk.