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James Hyerczyk

After hitting a multi-year low earlier in the week, natural gas futures rebounded on Tuesday, producing a technical closing price reversal bottom. The chart pattern was confirmed in the early trade on Wednesday.

A closing price reversal bottom is not a change in trend, but it often indicates the buying is greater than the selling at current price levels. If coupled with a bullish fundamental development, it often leads to a 2 to 3 day counter-trend rally.

At 09:13 GMT, March natural gas futures are trading $1.819, up $0.031 or +1.73%.

The catalyst behind the early price surge and the shift in momentum to the upside is a report showing a late-week cold blast, which could send demand to its highest level of the winter.

Mobius Risk Group Outlook

“A weather-driven headwind of this magnitude is often an insurmountable headwind this time of year because the lag effect from lower prices to sustained volumetric production impacts is measured in quarters or months rather than days or weeks, and because storage ratchets become increasingly impactful as winter draws to a close,” Mobius Risk Group said.

“A cold shot later this week could provide a momentary glimpse into a future where price-elastic demand is stimulated, supply is discouraged and weather sensitivity is illuminated. However, the six- to 10-day and 11- to 15-day weather forecasts will be more broadly considered than daily data,” the firm said.

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NatGasWeather Outlook

“The latest Global Forecast System (GFS) was a little milder with the cold blast forecast to hit the United States late next week, and that could be viewed as somewhat disappointing to the market,” according to NatGasWeather. “But there’s still a rather frigid blast to sweep across the Midwest and Northeast late this week that is expected to bring a surge in national demand.”

“After a break late this weekend and early next week, another weather system will track into the central and northern United States mid and late next week,” the forecaster said. “It’s this system that has the best potential to trend colder.”

Meanwhile, recent weather data teased colder air trying to push back into the United States around February 25-26, “but that’s rather far out and is far from convincing. Overall, the weather data isn’t quite as bearish as it was a couple of days ago, but it’s not exactly bullish either, with the only truly cold days of the next 15 being this Thursday-Saturday unless late next week were to trend colder,” NatGasWeather said.

Daily March Natural Gas

Daily Forecast

Based on the current price action, this week’s cold snap is enough to trigger the first phase of a short-covering rally. We’re already seeing this on the charts.

Cold weather next week and the week after will be the keys as to whether we finally see the massive short-covering rally we’ve been expecting for weeks.

The charts show that the first upside target zone is $1.829 to $1.847. Trader reaction to this zone will determine whether the initial rally continues.

Overtaking $1.847 will indicate the buying is getting stronger. This could trigger a rally into $1.906. Taking out this main top will change the main trend to up.

If the main trend changes to up, then look for the rally to possibly extend into $1.978 to $2.032.

This is the trading plan if we get back-to-back-to-back cold systems over the next two weeks.

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