Natural Gas News: Weather Forecast Through Mid-Feb Could Push Futures to $4.81

Natural Gas Surges Past $4.00 on Cold Weather Forecast

Natural gas futures are sharply higher late Friday as the nearby contract regained the important $4.00 level ahead of the weekend. Weather reports calling for cold risks into mid-February underpinned the market, which then attracted fresh speculative buying. Despite the news of a quick rebound in Lower 48 production, the price action suggests that traders are putting more emphasis on the demand side of the equation.

At 18:43 GMT, March Natural Gas futures are trading $4.152, up $0.234 or +5.97%.

Double Bottom and Rally Above Key Moving Averages

If you study the daily chart, you’ll see a double-bottom at $2.578 and $2.595 then a gap and go rally. The rally was fueled by the tremendous demand for gas ahead of winter storm Fern. This is what triggered the record surge in the February futures contract. The buying was strong enough to overcome the 50-day moving average at $3.440 and the 200-day moving average at $3.783.

Although the February futures contract went off the board on January 28 at a huge premium to the March contract, the latter continued to find support on the strong side of the 200-day MA which is now our line in the sand. March futures prices consolidated as traders continued to monitor the weather and speculators were rewarded on Friday with the surge to $4.376.

Upside Targets at $4.495 and $4.811 If Support Holds

As long as the 200-day MA continues to hold as support and the weather drives the upside momentum, March natural gas has a chance to surge past $4.326 resistance and challenge former tops at $4.495 and $4.811.

This particular rally may not be as dramatic as the February futures contract move because there aren’t as many short-sellers in the market. In late January, according to reports, algorithms and hedge funds were nearly 100% short futures ahead of the storm and the contract expiration. This is why the February futures rally was so dramatic, not necessarily because of the demand caused by arctic storm Fern. Without that backdrop, we have to accept the fact that the March contract is in an uptrend above the moving averages, the cold is expected to linger into mid-February and there are targets above current prices.

Take Profits at Targets—Don’t Chase the Rally

It’s better to look for targets at this time of the year instead of letting the momentum rip because we are moving closer to warmer weather and higher production. And use the moving averages to see if there is still a bid in the market, if not then lower your expectations for a rally. Remember that professionals are looking at the 10-15 day forecasts, not today’s temperatures.

To wrap it up, the forecasts are calling for colder temperatures into mid-February. Not an arctic blast, but colder temperatures. This shouldn’t come as a surprise since it is winter, but it’s enough to keep the market bid into the weekend. Bulls will be watching to see if this forecast gets better or worse by Monday.

Limited Short Interest May Cap Upside Potential

Even if it gets worse, we still suggest you limit your gains if they hit your targets. I don’t feel the need to play with profitable positions at a time when the weather could turn warm quickly. Furthermore, there aren’t as many shorts in the market after last week’s blow up. This is another factor that could limit gains.

More Information in our Economic Calendar.