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James Hyerczyk
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Natural Gas

Natural gas futures settled higher on Friday while continuing to straddle the proverbial “line in the sand” that should decide the near-term direction of the market. Aggressive longs are still holding up prices, but stubborn shorts refuse to budge, banking on a few weather models calling for the cold to break up by the end of the month.

If the spot market is any indication of price behavior then there is huge risk to the short-sellers ahead of a week-end that has the capability of gapping prices sharply higher when futures reopen on Tuesday after the long U.S. bank holiday. We could get an early indication of the “weekend” effect in the E-trade market Monday, but volume is expected to be light so the price action could be exaggerated.

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Futures markets were supported again by a jump in spot gas prices, which surged to all-time highs across much of the United States during the week-ending February 12 as biting cold held much of the country hostage, driving up heating demand, curtailing production and posing a threat to infrastructure.

On Friday, April natural gas settled at $2.876, up $0.40 or +1.41%.

Strong Upside Momentum in Cash Markets

Natural Gas Intelligence said, “Fueled by spikes to as much as $600 in the Midcontinent at the end of the week, the NGI Weekly Spot Gas National Average soared to $16.825, up $13.255 on the week.”

“Momentum in the cash markets had been slowing building as forecasters warned that a train of winter weather systems would take aim at the Lower 48. The north and central portions of the country were on the receiving end of the initial blast, which sent temperatures plunging and dumped several inches of snow throughout the region, with more on the way,” NGI said.

NGI added, “OGT gas traded Friday as high as $600 for delivery through Tuesday, to accommodate for the President’s Day holiday. The Oklahoma pricing hub averaged the February 7-12 period at $92.445, up $89.530 week/week. Chicago Citygate hit a $250 high in trading for the four-day period and went on to average $26.595 cents higher on the week at $29.600.”

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Bullish Catalysts Remain

EBW Analytics said although there is some justification in keeping March futures relatively intact – namely that storage levels are sufficient to get the market through winter even with the brutal cold – bullish catalysts remain.

The firm pointed out the “substantial” possibility that models are pushing warmer air too quickly. The latest model runs show the cold subsiding by the last week of February, with mild conditions forecast to return over most of the United States.

Nevertheless, EBW said the bitter blasts of cold portend “enormous” storage withdrawals for the next couple of weeks, and additional, more severe freeze-offs are likely.

Mobius Risk Group questioned the market’s apparent disregard for the coming span of bitterly cold weather. “We would caution those with naked short interest how tenable a sub-$3.00 index price at the Henry Hub is with cold weather intensifying through the weekend.”

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