Natural Gas Price Fundamental Daily Forecast – Short-Covering Fed by Major Differences Between Weather Models

Traders are anticipating a few demand swings throughout the month but nothing intense enough to fuel a major rally. Prices could strengthen later in the month if the Global Forecast System (GFS) model starts to show signs of matching the European model. The key issue for bullish traders remains the February 11 to 17 period, and the February 19 to 21 period.
James Hyerczyk
Natural Gas

Natural gas futures are inching higher on Wednesday after touching a multi-month low the previous session. The move is likely being fueled by light short-covering and position squaring. Traders could be adjusting positions in reaction to technically oversold conditions or refreshed weather forecasts. Near the end of Tuesday’s session, prices started to stabilize due to the lack of clarity over next week’s forecasts. According to reports, there are still major differences between the Global Forecast System (GFS), which is predicting milder temperatures and the European model, which is calling for colder temperatures.

At 12:54 GMT, March natural gas futures are trading $2.692, up $0.030 or +1.16%.

Short-Term Weather Outlook

According to NatGasWeather for February 5 to February 11, “Mild conditions will continue across the Ohio Valley and East through Thursday with highs of 40s and 50s. It will be exceptionally comfortable across the southern U.S. and Mid-Atlantic Coast with highs of 70s and 80s. The West will be stormy but only slightly cool. The coldest air will be confined to the Northern Plains where weather systems will trace through with highs of -0s to 20s, including rain and snow at times advancing across the rest of the Midwest. Cold air will return across the Midwest & Northeast Friday through Sunday with lows of -0s to 20s. Overall, national demand will be low through Thursday then increasing to high Saturday through Sunday.”

U.S. Energy Information Administration Weekly Storage Report

The week begins with total stocks at 2.197 trillion cubic feet, down 14 billion cubic feet from a year ago, but 328 billion below the five-year average, according to the U.S. Energy Information Administration for the week-ending January 25.

Early forecasts this week are calling for Thursday’s storage report to show a withdrawal of about 250 Bcf for the week-ending February 1. This would be about 100 Bcf larger than the five-year average of a 150 Bcf pull.

Daily Forecast

Some of yesterday’s and today’s early strength is being attributed to the very brief cold snap being forecast for this week-end in a few high demand areas. The cold is predicted to hit the Midwest and the Northeast beginning Friday and ending Sunday.

Traders are anticipating a few demand swings throughout the month but nothing intense enough to fuel a major rally. Prices could strengthen later in the month if the Global Forecast System (GFS) model starts to show signs of matching the European model. The key issue for bullish traders remains the February 11 to 17 period, and the February 19 to 21 period.

The price action the rest of the week will be determined by a combination of the weather models and the EIA data. Although the EIA forecast will widen the storage deficit, this week’s milder conditions will start to shrink the deficit once again.

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