Nat Gas Jumps as Freezing Temperatures Hit US East Coast

Natural gas prices are trading higher during the pre-market session early Monday, putting the market in a position to test the November 26 top at $5.088 and a key technical area at $5.094. Both should be considered trigger points for a further acceleration to the upside.

The daily chart indicates the market has room to run with near-term targets lined up at $5.468, $5.821 and $6.132.

At 06:28 GMT, March natural gas is trading $4.976, up $0.337 or +7.26%.

The catalyst behind the rally is a strong weather system called a Nor’easter. It’s bringing rain, snow, and strong winds to the East this weekend, with very cold air on the back side of the storm, including freezing temperatures into the Southeastern United States.

Energy Information Administration Weekly Storage Report

The U.S. Energy Information Administration reported last week that domestic natural-gas supplies fell by 219 billion cubic feet (Bcf) for the week ended January 21. Ahead of the report, there was a wide range of withdrawal estimates.

Natural Gas Intelligence (NGI) said a Bloomberg survey of eight analysts produced a range of withdrawal projections from 198 Bcf to 225 Bcf, with a median pull of 215 Bcf. The Wall Street Journal poll results averaged 215 Bcf as well, though the range of estimates was tighter. Reuters polled 17 analysts, whose estimates were as steep as 230 Bcf with a median draw of 216 Bcf. NGI modeled a 198 Bcf pull.

Last year, the EIA recorded a 137 Bcf withdrawal from storage in the similar week, while the five-year average draw is 161 Bcf.

Total stocks now stand at 2.591 trillion cubic feet (Tcf), down 308 Bcf from a year ago and 25 Bcf below the five-year average, the government said.

Friday’s Recap

Natural gas prices soared on Friday as the March futures contract became the top option. The rally was driven by bullish winter weather forecasts, light production, falling stockpiles and robust demand for U.S. Liquefied Natural Gas (LNG).

Short-Term Outlook

Fears over looming winter freezes could drive robust heating demand, interrupt production and necessitate steep drawdowns of gas from storage over the near-term.

Bespoke Weather Services on Friday issued forecasts calling for a chilly start to February. “What we see of the opening third of February looks quite cold in all of the major guidance.”

Technically, the main trend is up. A trade through $5.088 will reaffirm the uptrend. A move through $3.629 will change the main trend to down.

The main range is $6.132 to 3.416. The market is currently trading inside its retracement zone at $4.774 to $5.094. This zone is controlling the near-term direction of March natural gas.

Taking out $5.094 with strong buying volume could trigger another acceleration to the upside with the next target range $5.468 to $6.132.

A failure to hold $4.774 won’t change the trend to down, but it will be a sign of weakness. The nearest support is $4.378, followed by $3.964.