Nat Gas Trying to Form Support Ahead of Midday Forecasts

Natural gas futures are edging higher on Tuesday after retreating three days during a period of record volatility, highlighted by a series of wicked double-digit price swings.

The catalysts behind the current bearish price action are forecasts calling for a little colder weather and higher heating demand over the next two weeks than previously expected. This move is taking place despite a slow increase in output following weeks of reductions due to freezing wells and pipes.

At 15:38 GMT, March natural gas futures are trading $4.316, up 0.084 or +1.98%.

Spot Market Prices Near Four-Year High

In the spot market, frigid weather and high heating demand in the U.S. Northeast since the start of 2022 has kept next-day power and gas prices in New York and New England at or near their highest levels since January 2018, prompting power generators there to burn huge amounts of oil and liquefied natural gas (LNG).

Output Down, Demand Expected to Fall

Data provider Refinitiv said output in the U.S. Lower 48 states fell from a record 97.3 billion cubic feet per day (bcfd) in December to 93.9 bcfd in January and 90.4 bcfd in February after wells in several regions froze, including the Permian in Texas and New Mexico, the Bakken in North Dakota and the Appalachia in Pennsylvania, West Virginia and Ohio. February’s average was higher that it was on Monday due to an expected output rise on Tuesday.

Refinitiv projected average U.S. gas demand, including exports, would drop from 130.6 bcfd this week to 122.3 bcfd next week. Those forecasts were higher than Refinitiv’s outlook on Monday because the weather was expected to be colder than previously expected.

Daily Forecast

Shorts are covering early Tuesday after overnight weather forecasts showed an overall net increase in projected weather-driven demand. We could see further upside action later today if the midday forecasts confirm the move toward colder temperatures.

After a mix of changes overnight, the major weather models came into better agreement on a series of cold shots expected over the next two weeks, according to NatGasWeather. Models were showing an overall net increase in weather-driven demand expectations day/day, the firm told clients early Tuesday.

“If the weather data were to trend a little further colder for the seven to 15 day period, it would go a long way in undoing the damage done from warmer trends at the end of last week,” NatGasWeather said.

Technically, the main trend is still up despite the recent plunge. The market is finding support inside a retracement zone bounded by $4.378 to $3.964. This zone is likely to control the near-term direction of the market.

Look for an upside bias to develop on a sustained move over 4.378 with $4.601 to 4.774 the next likely target area.