Nat Gas Spec Buyers Hoping Cold Weather Extends into March

Natural gas futures are up for a second session early Tuesday after surging more than 6% the previous session. The strength is being fueled by forecasts calling for cooler weather and higher heating demand over the next two weeks than previously expected.

Short-covering and speculative buying is also being driven by an 8% spike in European gas prices which kept demand for U.S. Liquefied Natural Gas (LNG) exports near record highs. Additionally, European prices gained in part on the possibility of Russia invading Ukraine and cutting gas supplies to the rest of Europe.

At 11:37 GMT, April natural gas futures are trading $4.255, up $0.095 or +2.28%.

Heightened Concerns over Russia-Ukraine Keeping Demand for US LNG Strong

LNG prices in Europe jumped 10% on Monday with traders noting demand for U.S. LNG will remain strong so long as global gas prices trade 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.

Since Friday, this became an even greater worry on heightened concerns Russia could invade Ukraine. Some bullish traders are placing bets that a Russian invasion would likely lead Europe and the United States to impose sanctions on Moscow. This in turn could prompt Russia to cut gas supplies to Europe. Russia provides around 30%-40% of Europe’s gas supplies, totaling about 16.3 bcfd in 2021.

Short-Term Weather Outlook

According to NatGasWeather for February 15-21, “Chilly lows of 0s to 30s linger across the Upper Midwest and Northeast this morning for strong demand, aided by lows of 30s deep into the South and Southeast.

A swing back to light national demand will occur Wednesday-Thursday as a warm break sets up over the southern and eastern areas of the U.S. with comfortable highs of 50s to 70s. However, another frosty weather system will track into the Midwest/Plains and advance eastward Friday-Saturday with another round of lows of 0s to 30s for a swing back to strong national demand.

Overall, national demand will swing between high and moderate the next 7 days.

Short-Term Outlook

Technically, April natural gas is trading on the strong side of a key retracement zone at $4.218 to $4.021, making it support. A failure to hold this area will be a sign of weakness, while a move through $3.867 will change the main trend to down.

If the upside momentum continues then look for the rally to possibly extend into $4.460 to $4.600. Sellers could re-emerge on a test of this area. Taking out $4.600 with strong volume could trigger an acceleration to the upside.

A combination of cold weather demand and the possibility of a Russian invasion of Ukraine are underpinning prices at this time. But this could all change if the cold weather doesn’t last or if the crisis in Eastern Europe ends with a diplomatic agreement.

As far as the weather is concerned, traders will now be watching whether colder overnight trends hold, and if the pattern can surprise cold enough to start March.

Traders are also monitoring the situation in Eastern Europe after the Russian Defense Ministry reportedly announced that it had begun returning some troops to deployment bases after training exercises near the Ukrainian border.

Natural gas prices could fall if the situation over Ukraine softens as traders reduce the war premium built into LNG prices. However, demand for LNG is likely to remain strong in Europe because of low supply.