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James Hyerczyk
Natural Gas

Natural gas prices are trading sharply lower from Friday’s close suggesting bullish speculators have taken out the forecast for the polar vortex later in the month.

At the end of last week, meteorologists were anticipating a polar vortex – a cold snap that develops in the atmosphere above the North Pole and sends harsh blasts of freezing temperatures throughout the Northern Hemisphere. Should this develop, it could drop temperatures in Europe and Asia, as well, adding to already strong demand for U.S. liquefied natural gas (LNG).

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The early price action on Tuesday suggests this isn’t likely to occur based on weekend data. Otherwise, bearish traders would be handing bullish speculators a huge gift.

Although we may not see the extremely cold temperatures that would likely drive heating demand sharply higher, the price action seems to be indicating there will be enough cold to provide support.

At 10:39 GMT, March natural gas futures are trading $2.624, down $0.72 or -2.67%.

Short-Term Weather Outlook

According to NatGasWeather for January 19 – January 25, “A cold shot will track across the Great Lakes and interior Northeast the next few days with chilly highs of 20s & 30s. Most of the rest of the U.S. will be mild with highs of 40s to 60s for light national demand. Colder weather systems will push into the West and Northern Plains last this week with lows of -10s to 30s, then spreading across the rest of the northern U.S. this weekend for a swing to strong national demand.”

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US Energy Information Administration Weekly Storage Report

The EIA reported last Thursday a withdrawal of 134 Bcf from natural gas storage for the week-ended January 8. The report was bullish because the withdrawal exceeded pre-report estimates of 129 Bcf, but traders showed a muted reaction to the number because it came in well below the five-year average withdrawal for that time period of 161 Bcf.

Daily March Natural Gas

Daily Forecast

Ahead of the weekend, NatGasWeather said Friday, “We view the January 26 -29 period as one of the best chances this winter for cold to finally come through.” However, the early price action on Tuesday doesn’t show much confidence in the forecast.

Although traders may be trying to build a support base over a short-term support area at $2.552 to $2.485, the market seems to lack that important catalyst that could trigger a surge to the upside. Maybe we’ll get it during the release of the midday forecasts.

Technically, the main trend is up according to the daily chart, but last week’s change in trend is starting to look more like it was fueled by buy stops rather than aggressive buying.

On the downside, support comes in at $2.552 to $2.485. Fundamentally, strong demand for liquefied natural gas (LNG) and seasonal buyers betting on a cold weather spike are helping to underpin prices.

On the upside, the major resistance zone is $2.794 to $2.918. This area stopped the buying at $2.835 on January 12.

For a look at all of today’s economic events, check out our economic calendar.
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