Natural Gas News: Cold Lingers But March Price Action Says the Panic is Over

Natural Gas Futures Edge Lower as Market Navigates Contract Rollover

March Natural Gas futures are edging lower ahead of the close on Tuesday. Traders are still navigating the rollover from the February contract that reached its highest level as a nearby contract since 2022 on Monday.

Traders are also still focusing on the cold weather that is expected to continue into at least the first 10 days of February. The February futures contract is trading near $6.00 while the March futures contract trades about $2.30 lower, suggesting the market believes weather conditions will return to more normal temperatures over the near-term.

At 20:12 GMT, March Natural Gas futures are trading $3.783, down $0.115 or -2.95%.

200-Day Moving Average Becomes Critical Technical Level

Technical traders are watching the price action around the 200-day moving average at $3.783 since this indicator will likely set the near-term tone.

Key Levels to Watch: Breakout Above $4.00 or Drop to $3.45

A sustained move over the 200-day MA will indicate buyers are coming in to defend the level with eyes on a breakout over $3.997. There is no significant resistance above $4.00, giving the market room to run to the upside.

A sustained move under the 200-day moving average will be a sign of weakness with a price cluster at $3.452 to $3.442 the next target zone. The latter is the 50-day moving average, which is both support and the intermediate trend indicator.

Winter Storm Fern Sparks Four-Year High Amid Production Squeeze

To recap the events this week and to look ahead, a deadly combination of record-breaking Arctic temperatures and a sudden squeeze on domestic production heightened the volatility, sending natural gas to its highest level in four years on Monday.

Driving the current vertical price action is winter storm Fern – a huge weather system that has spread across 37 states with some reporting wind chills as low as minus 50 degrees. Although the snow portion of the storm is expected to weaken, the cold temperatures are expected to remain in play until at least February 1. Following this system will be another wave of cold, which may not produce the same extreme conditions, but trigger days of below average temperatures as far south as Florida.

Cold Wave Pushes South Toward Florida, Drives Continued Demand

Late in the session on Tuesday, both cash and February futures were still higher for the week as the current cold wave continues to drive demand as it spreads further south toward Florida. This slow-moving system is expected to bring cold temperatures into late Sunday.

March Contract Outlook: Different Dynamics Ahead as Rally Drivers Fade

With the February futures contract going off the board on Wednesday, the attention will switch toward the March contract. Those expecting this futures contract to match the performance of its predecessor should take note. The size of the rally in the February futures contract was caused by a combination of unexpected cold temperatures and a massively short market. There were some reports that said computer algorithms were 100% short futures when the short-covering rally began. Prices accelerated when the hedge funds began to cover and it was off to the races to $7.439 on Monday.

When the March futures contract becomes the front-month, we could see a market underpinned by the extended cold, but gains could be limited because it won’t be a surprise, there won’t be an oversold market and warmer temperatures are likely on the horizon. Nonetheless, the damage has been done and storage will drop, making the market vulnerable for volatile price swings over the next three government storage reports starting with Thursday’s.

More Information in our Economic Calendar.