Natural Gas Fundamental Analysis, Week of March 13, 2017

The return of cold temperatures helped drive natural gas futures to their highest level since February 16 last week. Depending on what happens over the week-end, we could even see a gap to the upside. Most of the price action has been fueled by short-covering.

May Natural Gas futures closed the week at $3.074, up 0.135 or +4.59%.

Sellers built large short positions throughout February as temperatures remained above normal throughout the month. The return of winter-like temperatures is helping to drive up natural gas demand.

Last week, the U.S. Energy Information Administration reported that natural gas storage in the U.S. fell by 68 billion cubic feet in the week-ended March 3. This was higher than the 61 Bcf predicted by traders and analysts.

The EIA also reported a build of 7 Bcf. Last year, the report showed a 57 Bcf draw. The five-year average for this time of year shows a decline of 136 Bcf.

Total natural gas storage now stands at 2.295 trillion cubic feet, 7.7% lower than at this time a year ago and 18.8% above the five-year average for this time of year.

Forecast

Natural gas futures could gap higher at the start of the week. It all depends on how cold it was over the weekend and how much of this weather was anticipated and already priced into the market.

Previous price swings in the market have created several retracement level price targets that could be used by hedgers and short-sellers to re-establish short positions. They range from $3.122 to $3.272. If the rally does run into resistance then prices could collapse under $3.024.

According to natgasweather.com, a strong cold front with rain and snow will sweep across the Great Lakes, Mid-Atlantic, and Northeast through the weekend, where overnight lows will drop into the teens to below zero to drive strong demand for heating, which should lift natural gas prices.

Traders are also pricing in another strong winter storm and associated cold blast that will track across the East during the middle of next week with heavy rain, snow, and strong winds. Overall, light natural gas demand at the start of the week will rapidly increase to high this weekend through much of next week.

Based on the weather forecast, we should see increased demand, however, you still have to watch the order flow at highs because we aren’t sure how much of the weather has already been priced into the market.