Nat Gas Bulls Hoping Midday Models Confirm Early Feb Cold
Natural gas futures are surging on Wednesday and patient bulls are benefitting following a strong weather-driven rally. The catalyst behind the price action is a shift in the European weather model, which is now indicating a “major cold move”.
Technically the market didn’t take out any significant high, but the move through a Fibonacci level at $3.964 was enough to spook weak shorts into covering their bearish positions.
At 15:30 GMT, March natural gas futures are trading $4.126, up $0.232 or +5.96%.
Bespoke Reports Shift in European Weather Model
Natural Gas Intelligence (NGI) reported overnight, the European weather model underwent a “major cold move,” adding close to 20 gas-weighted degree days versus its projections as of Tuesday afternoon, according to Bespoke Weather Services.
“Consensus supports moving the official forecast solidly in the colder direction,” the firm told clients early Wednesday. “Confidence is even lower today, however, as the signals we see from tropical forcing do not seem to support this kind of cold continuing beyond the first few days of February.
“…So far, however, model consensus says that is incorrect, so either we placed too much emphasis on the orientation of tropical forcing, or models will ultimately correct back in the warmer direction over the next few days.”
Gas Demand Remains Strong Ahead of Thursday’s EIA Storage Report
In addition to production issues, cold temperatures are expected to generate the strongest gas demand of the winter so far, topping the past week’s surge in the process.
The current chilly temperatures are likely to cause a steep drawdown in storage inventories. NGI’s model is projecting a pull of 198 Bcf, which compares to last year’s 137 Bcf withdrawal in the similar week and the 161 Bcf five-year average draw.
EBW said the next three storage reports could result in a more than 700 Bcf pull from stocks, NGI reported.
Looking ahead, “Demand this week will be the strongest so far this winter and will result in next week’s draw likely printing over 250 Bcf,” NatGasWeather.
The price action was impressive early in the session, but the movement into the close will be determined by the midday models. Bullish traders will be eyeing these reports to see if the models confirm the colder trends for February 3-8.
NatGasWeather says, “The weather data’s been bouncing inconsistently between colder and warmer trends going back to last week.”
Technically, a break back under $3.964 will be a sign of weakness. Holding this level along with a favorable weather forecast could launch the market into $4.356 to $4.378.