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James Hyerczyk

Natural gas futures are trading lower on Tuesday as aggressive short-sellers, perhaps betting on a test of a multi-year low at $1.650, continue to pressure prices while the last of the remaining bulls may be finally throwing in the towel on the chances of a meaningful cold snap this heating season.

At 11:25 GMT, March natural gas futures are trading $1.758, down $0.008 or -0.45%.

Bespoke Weather Services

According to Bespoke Weather Services, weather models unanimously moved warmer over the weekend, with projected demand losses ranging from 15 to just over 30 gas-weighted degree days. Although there are a couple of colder days coming at the end of this week, the pattern goes back very warm again as both the Arctic oscillation and the East Pacific oscillation stay positive into the latter part of the month.

“This cuts off the supply of colder air into the United States, keeping it bottled up in the polar regions,” Bespoke chief meteorologist Brian Lovern said. “As a result, it increases the risk that we see another top 10 warm month here in February, cementing this meteorological winter as one of the warmest in our data set.”

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NatGasWeather

NatGasWeather noted that, like all winter so far, colder patterns in the day 13-16 forecast trended much warmer as they rolled into days six to 11. However, the day 13-16 forecast now is also quite mild versus normal across the eastern half of the United States, and the midday Global Forecast System run remained quite bearish with the pattern February 17-24 even as it added back some of the demand it lost over the weekend.

The European model also added back some demand in its afternoon run, specifically with the weather system across the Great Lakes and Northeast February 19-21, according to NatGasWeather. “It’s far from frigid with this system, just a bit better this run.”

Daily Forecast

Barring a surprise short-squeeze due to the massive short position, prices are likely to continue lower this week. Time is running out for a weather-related short-covering rally.

According to EBW Analytics Group, with the potential for additional cold displacement largely exhausted, this week’s demand loss is sufficient by itself to justify a further price decline of 10 cents or more.

“The psychological impact, however, could be just as significant,” EBW said.

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