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James Hyerczyk
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Natural Gas

Natural gas futures are edging lower late Wednesday despite forecasts calling for a polar vortex, or subfreezing air descending from Canada and covering most of the continental United States in late January.

The price action suggests traders are approaching the possible onset of the extremely cold temperatures at the end of the month cautiously. Meanwhile, expectations of increased demand for U.S. liquefied natural gas (LNG) in Europe and Asia are expected to underpin the market.

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At 19:37 GMT, March natural gas futures are trading $2.703, down 0.004 or -0.15%.

Hope for Intense Polar Vortex May Be Fading

Both the American and European weather models are calling for a heavy dose of cold by late last week, but the pattern is not expected to be as strong as the polar vortex that hit the U.S. in 2014. This may be dampening demand expectations.

NatGasWeather said prices were boosted early by the “hype of cold now for January 23-26.” Major models in the afternoon, however, showed “not quite as cold air into Western Canada, thereby pushing less impressive subfreezing air into the U.S. as well in late January… “Of course, the data could flip back colder overnight and will be watched very closely by market participants.”

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Asia, Europe LNG Demand Expected to Surge

It may not get as cold as initially expected in the U.S. when the polar vortex arrives, but Asia and Europe are expected to experience freezing conditions that should drive up heating fuel needs.

Although LNG volumes fell below 10 Bcf on Tuesday for the first time this year, LNG data showed, this was blamed on temporary delivery interruptions. However, export demand is expected to climb back above 11 Bcf this winter, a level at which it straddled for several days last week, according to Natural Gas Intelligence (NGI).

Daily March Natural Gas

Short-Term Outlook

March natural gas futures are going to have a hard time rallying over the short-run if the expected cold isn’t powerful enough to drive prices over the top of a key resistance zone at $2.918. This price is a potential trigger point for an acceleration to the upside. A short-covering rally won’t cut it. Real buyers have to have a reason to show up. Meanwhile, the market is likely to continue to find resistance at $2.794.

There is support, however, both technical and fundamental. Technically, minor support is $2.698, but the main support is $2.552 to $2.485. Fundamentally, strong LNG demand could prevent a wash-out to the downside.

Side Notes

With gains capped by a weak Polar Vortex and strong LNG demand expected to underpin prices, we could be looking at a rangebound trade over the near-term with support coming in at $2.552 and resistance $2.794.

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

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