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James Hyerczyk
Natural Gas

Natural gas futures are trading lower on Tuesday shortly after the regular session opening. The lack of follow-through to the upside following Monday’s rally is likely behind the selling pressure. Yesterday, prices rose after expected weekend weather shifts failed to materialize, encouraging shorts to cover their speculative positions. Some traders were looking for a gap-lower opening, and when the market opened steady, they covered their short positions.

At 13:10 GMT, February natural gas is trading $2.283, down $0.043 or -1.85%.

Natural Gas Intelligence (NGI) had another spin on Monday’s price action. Its analysts said Monday’s gains had nothing to do with long-range weather outlooks.

“Instead, tighter balances, a potential short squeeze and strong cash prices from a double-barreled winter storm moving across the United States likely combined to send the January Nymex gas futures contract soaring,” NGI analysts wrote.

Short-Term Weather Outlook

According to NatGasWeather for December 16 to December 22, “Demand will increase early this week as a cold shot with rain and snow sweeps across the northern and central U.S., coldest across the Midwest and Northeast with lows of -10s to 20s. It will be warm Monday from South Texas to the Southeast with highs of upper 60s to 80s for light demand, but cooling Tuesday thru Thursday as a cold front pushes through. Reinforcing cool air will continue across the Northeast late in the week with highs of 20s to 40s, while the rest of the country is expected to warm above normal with highs of 40s to 70s. Overall, demand increasing to high Tuesday through Thursday, then back to moderate or low this weekend into next week.”

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Daily Forecast

It looks like you can throw all those possible reasons for Monday’s rally out the window since the market is trading lower on Tuesday.

NatGasWeather said on Monday, “But as far as U.S. weather patterns, they’re as bearish as they have looked in more than a month, and it will take either much colder trends or better prospects of cold returning at the end of December or the start of January if bearish weather headwinds are to cease.”

If there is a turnaround in the market then pick a reason for the move. They could range from a spike in cash prices to a short-squeeze due to oversold futures to a notable drop in production.

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