Crude Oil and Natural Gas Forecast | Diverging Trends as Winter Demand Rises

What to Know

• Crude oil remains under pressure as global demand slows and supply stays elevated.
• Natural gas shows strong seasonal demand, boosted by the January contract rollover.
• WTI crude faces resistance from the 50-day EMA and a descending trendline.
• Natural gas pullbacks are likely to attract buyers as winter demand increases.
• Key support zones: $57.25 and $55 for WTI; $4.20 and $4 for natural gas.

Light Sweet Crude Oil / Natural Gas Backdrop

The energy sector is an interesting place at the moment, as there has been a massive divergence between the two major energy sources. The light-sweet crude oil market, or crude oil markets in general, for that matter, all look very weak. At the same time, the natural gas market looks very strong with its huge demand, and the time of year has a major influence.

With the light sweet crude oil market or any crude oil market at this point, there is a major problem with a lack of demand due to the economy slowing around the globe. The Russian sanctions had put a jolt back into the market and sent it higher. But quite frankly, the Russians have seen sanctions on their crude oil for the better part of at least a decade now, and it’s never really made much of a difference.

With that being said, the question is now going to be about demand as slowing economies demand less oil in a situation where Russia, the United States, and OPEC are all producing massive amounts of crude, thereby keeping prices low. The natural gas market, of course, is completely different due to the fact that this time of year produces a lot more demand. And there has been natural gas really taking off as a result, which is something that is seen almost every winter. Natural gas is rolling over into the January contract, so it should continue to keep it elevated.

WTI Crude Oil Technical Analysis

The light sweet crude oil market fell during the trading session on Tuesday but continues to see support near the $57.25 level. This is a short-term minor support level that has been in play for three days now, but at this point, there is a situation where anytime the market rallies, there will be sellers willing to get involved. There is a short-term downtrend line in the 50-day EMA walking hand in hand to lower levels, and that should continue to put pressure on this market. The $55 level underneath should be a bit of a floor and therefore should be watched very closely.

Natural Gas Technical Analysis

The natural gas market had gapped higher to kick off the trading session on Tuesday, which was the beginning of the January contract, but has since fallen. Mild temperatures in the northeast and part of the United States will be a little bit of a drag on natural gas pricing, but really, at this point, any pullback has to be looked at as a potential buying opportunity, as the January contract is one of the biggest ones for the year as far as demand is concerned.

The next couple of months should be bullish for natural gas as colder temperatures hit the United States and Europe, and therefore, a drop should be thought of as value. The $4 level would be particularly interesting if the market can get back to that level, but even $4.20 might be an area where value hunters return. Looking to trade on the right-hand side of the V pattern on a pullback and bounce is probably the way most traders will be looking at this over the next several weeks.

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