Nat Gas Buyers Cautiously Optimistic Ahead of Midday Outlook

Natural gas futures are spiking to the upside on Wednesday shortly after the regular session opening. The rally is being driven by expectations of higher demand as a frigid Arctic blast prepares to sweep across the northern and central U.S. late this week with lows of -20s to 20s, including lows of 10s to 30s with snow and ice deep into Texas and the South.

At 13:19 GMT, March natural gas futures are trading $5.257, up $0.506 or +10.65%.

Although the market is trading on the strong side of a key technical area, there is some nervousness about buying strength at the current lofty price level with the weather data still favoring a milder break setting up over much of the U.S. February 9-12 for a swing back to lighter national demand.

Nonetheless, some traders think the news will only cause a temporary glitch in the rally with both the GFS and EC models suggesting colder air will return across the northern U.S. Federal 13-15, although with the GFS faster with it than the EC.

Short-Term Weather Outlook

According to NatGasWeather for February 2-8, “National demand will increase the next several days as an Arctic blast spreads south and east out of the Midwest with frigid lows of -20s to 20s, including lows of 0s to 30s into Texas and the South, along with snow and ice.

A mild break will set up over much of the U.S. during the middle of next week with highs of 40s to 70s for lighter national demand besides near the Canadian border where it will remain chilly with highs of 20s to 30s.

Overall, national demand becomes high-very high late today through the week-end, then moderate mid-next week.

Pipeline Freeze-Offs Likely

The current price action suggests investors are a little nervous as we approach the one-year anniversary of deadly Winter Storm Uri, which triggered a 20% drop in Texas gas supply.

Even though the expected freeze is not expected to be as intense as initially modeled, NatGasWeather said production is likely to be curbed because of pipeline freeze-offs.

There is also the potential for power outages and other impacts to the energy grid.

Daily Forecast

The main trend is up with potential targets coming in at $5.468, $5.821 and $6.132.

The main range is $6.132 to $3.416. March natural gas is currently trading on the strong side of its retracement zone at $5.094 to $4.774, making it support.

Look for the bullish tone to continue on a sustained move over $5.094, but for conditions to turn neutral inside $5.094 – $4.774. A trade through the lower or 50% level at $4.774 will be an early sign of weakness.

Prices could be a lot higher if it weren’t for the warmer spell February 9-12. However, the midday report could identify a change in this outlook.