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James Hyerczyk

Natural gas futures are surging early Wednesday, hitting their highest level since March 17, as weather forecasts trended even colder and production continued to fall. Spot prices were also sharply higher despite generally mild conditions across most of the country.

Bullish 15-Day Weather Model

After showing signs of the presence of buyers late last week, prices jumped on Monday as the latest weather models became even more supportive by pushing the 15-day forecast period to the cold side of normal, according to Bespoke Weather Services.

Bespoke told Natural Gas Intelligence (NGI) that forecasts have trended chillier as stronger upper-level ridging around Alaska has become “more of a mainstay” in models over the last week. The firm went on to say there’s also some occasional light ridging into Greenland that has come into play, all of which should lead to colder air pushing southward out of Canada into the United States starting around the middle of this week.

Bespoke went on to day that “The strongest cold relative to normal lies in the Plains and Midwest, but the East shares in some chill as well, something that was almost totally absent in winter,” Bespoke said. “These changes now increase the likelihood that this April will turn out to be quite a bit colder than last April, though not as cold as in April 2018.”

At 10:53 GMT, May natural gas is trading $1.794, up $0.063 or +3.64%.

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Lower Production

NGI reports that production in the past several days has been coming in lower than last month, with Texas leading the declines, Genscape Inc. data showed. Production from the weekend and Monday was averaging 92.3 Bcf/d, which is coming in about 0.94 Bcf/d lower versus March’s average, according to the firm.

“During the past three days, the largest declines are posting in Texas at more than 1.2 Bcf/d below March, followed by close to 0.2 Bcf/d of declines in the Permian and 0.1 Bcf/d out of the Bakken,” Genscape senior national gas analyst Rick Margolin said. “These declines are collectively outweighing a small 0.1 Bcf/d increase in Northeast receipts.”

Daily Forecast

The main trend turned up earlier today when buyers took out the previous main top at $1.782. In doing so, the market hit a retracement zone at $1.783 to $1.844.

The near-term direction of the market will be determined by trader reaction to this zone. The key level to watch is $1.783.

Bullish Scenario

A sustained move over $1.783 will indicate the presence of buyers. If this move creates enough upside momentum then look for a surge into $1.844, followed by $1.875, where it’s likely to run into strong resistance.

Bearish Scenario

A sustained move under $1.783 will signal the return of sellers. This could trigger a pullback into $1.685 over the near-term.

Besides the weather, traders are also reacting to the possibility of a production cut deal between Russia, Saudi Arabia and the United States. Cutting production in the U.S. could be bullish for natural gas because it will limit the residual natural gas produced from drilling.

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