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James Hyerczyk

Natural gas futures are edging higher on Tuesday for no particular reason other than some optimism in the crude oil market being fueled by reports that U.S. and Russian officials will meet to discuss crashing oil prices. Without the Saudis in attendance, the talks aren’t likely to yield much fruit. Some of the price action today is likely being fueled by weaker short-sellers lightening up their positions ahead of the talks.

At 10:10 GMT, May natural gas futures are trading $1.720, up $0.030 or +1.79%.

Traders are also shrugging off a bearish weather outlook, which suggests someone is just making a market while they continue to assess the economic damage from the coronavirus outbreak. The current counter-intuitive move supports the conclusion of analysts at Bespoke Weather Services, who said on Monday that the price action is a ‘classic example of why we have stressed low confidence and the likelihood of erratic price action in this kind of trading environment.”

Short-Term Weather Outlook

According to NatGasWeather for March 30 – April 5:  Warm conditions will continue across the southern US this week with highs of upper 60s to 80s, although not as hot as last week. The northern U.S. will see weather systems track across with rain and snow showers, focused over the Northwest, Great Lakes, and Northeast. Highs across the northern, western, and central U.S. will still be rather mild with 40s to 60s and very little coverage of 30s. Weather systems will continue across the northern U.S. late in the week and next weekend, but still with little subfreezing air.”

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Daily Forecast

The direction of the May natural gas futures contract on Tuesday is likely to be determined by trader reaction to the minor pivot at $1.685.

A sustained move over $1.685 will indicate the presence of buyers. If this creates enough upside momentum then look for a short-covering rally to possibly extend into the last main top at $1.782 over the near-term.

A sustained move under $1.685 will signal the presence of sellers. This could lead to a retest of the minor bottom at $1.613 and the main bottom at $1.587.

Bespoke summed up current market conditions this way. “Our stance remains that the only issue that truly matters is how much demand will ultimately be lost by the slower economy, which at least somewhat explains the correlation with the equities market, an optimism there equates to optimism that perhaps demand will be impacted for a lower period of time. The problem is that this sentiment changes seemingly daily.”

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