Nat Gas Shows Early Weakness Despite Elevated Upside Risks

Natural gas futures are down for a third session on Wednesday as forecasts calling for bearish shifts in the weather continued to outweigh concerns over limited supplies in Europe due to the on-going war between Ukraine and Russia.

At 13:09 GMT, April natural gas futures are trading $4.495, down $0.032 or -0.71%. On Tuesday, the United States Natural Gas Fund ETF (UNG) settled at $16.05, down $0.90 or -5.31%.

Short-Term Weather Outlook

According to NatGasWeather for March 9-15, “National demand will be moderate to strong Wednesday-Thursday as a weather system tracks across the Midwest and Ohio Valley with rain, snow and lows of teens to 30s into Texas. A stronger reinforcing cold shot will follow this Friday-Sunday with lows of -10s to 30s for strong to very strong national demand.

The West will be mild to cool with lows of 10s to 40s, while the Southeast will be the warmest U.S. region with highs of 60s to 80s. A warmer U.S. pattern will set up next week with widespread highs of 50s to 80s.

Intermediate-Term Weather Outlook

NatGasWeather attributed this week’s weakness to “an increasingly bearish setup” in the weather outlook for next week. Both the American and European weather models extended warmer trends Tuesday, according to the firm.

“While the coming six days are rather bullish with stronger-than-normal national demand, the March 15-22 U.S. pattern has trended increasingly bearish as above-normal temperatures over the southern U.S. expand to cover most of the northern U.S.,” NatGasWeather said. This would drop national demand to the “lightest levels in months,” and the data as of Tuesday suggested the milder pattern could stick around through late March.

Short-Term Outlook

Although the bearish weather forecasts has moved weak domestic demand to the forefront, Russia’s invasion of Ukraine and the escalating sanctions on Russia and its energy empire remains a source of uncertainty, creating unstable conditions in the market.

There are still some bullish catalysts out there that could turn prices sharply higher now that President Joe Biden has banned imports of Russian oil and natural gas. These include intensifying worries that the war in Ukraine could disrupt or even cut off gas flow from Russia to Europe.

Additionally, Natural Gas Intelligence (NGI) reported that U.S. production dipped to 93 Bcf on Tuesday from nearly 95 Bcf a day earlier, according to Bloomberg’s estimate.

Meanwhile, exports of U.S. liquefied natural gas (LNG) have hovered around 13.5 Bcf most of March – near record levels amid robust demand from Europe, NGI estimates show.

The current sell-off in the futures market could turn out to be a blessing if the situation in Europe worsens because prices are much cheaper than they were last week and appear to be headed into a value area.