Natural Gas News: Warmer Weather Hits Market Sentiment, Cools Bullish Momentum

Natural Gas Steadies After Sharp Drop — But Headwinds Remain

U.S. natural gas prices are steady early Tuesday after Monday’s steep plunge. Despite the stabilization, the market still faces fundamental and technical headwinds.

At 13:53 GMT, March Natural Gas is trading $3.290, up $0.053 or +1.64%.

Weekend Weather Forecast Triggers Selloff

On Monday, prices dropped sharply after a weekend weather report showed a warming trend for the 2nd week of February over much of the U.S. The bearish outlook led to a gap lower opening and pushed the nearby futures contract under the $4.00 level.

According to NatGasWeather for February 2-8, “Chilly weather systems will sweep across the Midwest, Ohio Valley, and Northeast with highs of 10s-30s. Most of the western and southern U.S. will be mild and dry with highs of 40s-70s. Overall, national demand will be high the next 6-days, then moderate.”

The Commodity Weather Group reaffirmed the NatGasWeather forecast when they said the 10-day weather outlook for the U.S. turned warmer, potentially reducing natural gas heating demand. Remember that professional futures traders key off the 10-15 day forecasts, so this is a major development.

Production Rebounds as Temperatures Rise

The weather also played a role in the recovery in U.S. natural gas production. When front-month natural gas futures jumped to a 3-year high last Wednesday due to an Arctic blast from a polar vortex, gas wells froze up in Texas and other places, leading to about 50 billion cubic feet of natural gas coming offline, or about 15% of total U.S. natural gas production. With temperatures warming, production rose to 111.6 bcf on Monday, the highest in nearly two weeks. It could even hit a record high over the near-term, with active U.S. natural gas rigs recently posting a 2-year high.

Storage Data Thursday Could Show Massive Draw

Supply and demand will be in focus on Thursday when the government releases its latest weekly storage figures. Traders are anticipating a huge withdrawal due to the extreme cold for the week ending January 30. Last Thursday’s report was bullish with inventories for the week ending January 23 showing a 242 bcf draw, higher than the market consensus of 238 bcf and the 5-year weekly average draw of 208 bcf. Traders will be watching to see if the storage surplus turns to a deficit. Although this may not be important now unless there is another arctic blast, a deficit could impact summer pricing.

Technical Picture Turns Bearish

Technically, the trend is down according to the daily swing chart. March natural gas is also trading on the weak side of the 50-day moving average at $3.423 and the 200-day moving average at $3.777. Both indicators are now resistance. The market is also on the bearish side of a retracement zone at $3.284 to $3.502.

Looking ahead, with the weather warming over the next 10 days and the market on the weak side of the 50-day and 200-day moving averages, my bias has flipped cautiously bearish. Bearish because of the technical formation. Cautious because it’s still winter and weather patterns can still turn cold and volatile at any time.

More Information in our Economic Calendar.