Chillier Forecasts Stretch Nat Gas Prices into Resistance

Natural gas prices are trading higher for a fourth straight session early Thursday, jumping to its highest level since February 4 on forecasts for much colder weather and higher heating demand through early March than previously expected.

Spot gas prices extended their gains another day outside of the Northeast, where prices continued to retreat from recent highs, according to Natural Gas Intelligence (NGI). NGI’s Spot Gas National Average climbed 14.0 cents to $4.215.

At 09:06 GMT, April natural gas is trading $4.528, down 0.044 or -0.96%.

Technically, natural gas is testing a key resistance area at $4.460 to $4.600. Trader reaction to this zone is likely to determine the near-term direction of the market.

On the bullish side, a sustained move over $4.460 will indicate the buying is getting stronger. If this move generates enough upside momentum then look for a potential acceleration into $5.053.

A bearish tone could develop if $4.460 fails as support with $4.218 – $4.021 the next likely target area.

Weather Concerns Driving Price Action

After a dramatic shift to cold over the weekend, the new forecasts have trended chillier all week. NatGasWeather added even more cold to its forecast on Wednesday, however, it questioned whether the changes were “too cold, too quick.”

Nonetheless, the midday Global Forecast System (GFS) added even more heating degree days by shortening a projected warming across the southern and eastern United States early next week, while also moving slightly colder with weather systems into the northern and central part of the country February 24 – March 2, NGI reported.

“Clearly, colder trends are bullish in the context they will ensure soon-to-be deficits near 250 Bcf will increase further in early March,” NatGasWeather said.

Energy Information Administration Weekly Storage Report

The EIA is scheduled to release its weekly storage report for the week-ending February 11 at 15:30 GMT on Thursday, with estimates coming close to yet another 200 Bcf draw. If the EIA reports a drawdown at this level, it would mark the fifth consecutive 200-plus decline in inventories.

Ahead of the report, NGI is reporting a Bloomberg survey showed withdrawal projections from 182 Bcf to 204 Bcf, with a median pull of 199 Bcf. A Wall Street Journal poll reflected lighter estimates as low as 176 Bcf, with a median of 195 Bcf.

Reuters polled 16 analysts, whose estimates ranged from withdrawals of 160 Bcf to 208 Bcf, with a median estimate of 196 Bcf. NGI modeled a 189 Bcf withdrawal.

Total working gas in storage as of February 4 stood at 2,101 Bcf, which is 441 Bcf below year-earlier levels and 215 below the five-year average, according to the EIA.

Short-Term Outlook

Besides the short-term weather outlook, bullish traders are also monitoring the situation in Eastern Europe between Russia and Ukraine. Of particular interest is U.S. Liquefied Natural Gas (LNG) demand.

The United States and Europe have said they would sanction Russia if it invaded Ukraine, likely prompting Russia to cut some gas exports to Europe. Russia provides around 30%-40% of Europe’s gas supplies, totaling about 16.3 billion cubic feet per day (bcfd) in 2021.

Traders said demand for the U.S. LNG would remain strong so long as global gas prices keep trading well above U.S. futures as utilities around the world scramble for cargoes to meet surging demand in Asia and replenish low inventories in Europe, especially with the threat that Russia could invade Ukraine and cut gas supplies to Europe.