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James Hyerczyk
Natural Gas
Natural Gas

Natural gas futures are edging higher on Thursday, driven by short-covering and position-squaring ahead of today’s U.S. Energy Information Administration’s (EIA) weekly storage report. Traders could also be showing some reaction to forecasts calling for a cold weather snap to hit the U.S. border around December 31 and January 3.

At 1300 GMT, February natural gas futures are trading $3.811, up 0.160 or +4.48%.

U.S. Energy Information Administration Storage Report Forecasts

Estimates point to a withdrawal in the low to mid-130 Bcf range.

Bloomberg is calling for a range of 118 Bcf to 146 Bcf with a median draw of 135 Bcf. Reuters is looking for a range of 94 Bcf to 153 Bcf with a median of 133 Bcf. Additionally, Kyle Cooper of IAF Advisors and Bespoke Weather Services each estimated a 133 Bcf draw, while EBW predicts a 145 Bcf draw.

This period last year showed a draw of 166 Bcf and the five-year average pull is 144 Bcf.

According to NatGasWeather, “…the span of mild weather was expected to vastly improve the dismal storage picture. Deficits near 723 Bcf were expected to hold through Thursday’s Energy Information Administration (EIA) storage report, then would likely improve 150 Bcf toward 575 Bcf after the following several EIA reports account for the current mild spell.”

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Forecast

Today’s price action is likely being fueled by technically driven short-covering. The short-term weather models remain unchanged with some adding several heating degree days over the nine- to 15-day period, “but still not cold enough to be considered bullish,” NatGasWeather said.

The firm is also saying that it expects light demand over the next 10 days, then temperatures may move toward normal/neutral December 30 – January 2 as cold begins to spread from the West.

Weather Decision Technologies said “there was the potential for a colder shift for the first half of January.”

The main range is $3.111 to $4.849. The market is currently testing the lower end of its 50% to 61.8% retracement zone at $3.775 to $3.980.

The key number to watch today is $3.775.

A sustained move over $3.775 will indicate the short-covering is getting stronger. If this generates enough upside momentum then look for the rally to possibly extend into the 50% level at $3.980. Overtaking this level could trigger an acceleration to the upside as this move would likely scare a lot of the weaker shorts out of the market.

 

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