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James Hyerczyk
Natural Gas

After testing key resistance on Monday, following a mostly range-bound session, natural gas bulls finally generated enough upside momentum to enter a key technical retracement zone at $2.679 to $2.713. This is a sign that the buying is getting stronger. Holding the lower, or 50% level could generate the upside momentum needed to challenge the upper or Fibonacci level at $2.713. This is a potential trigger point for an acceleration to the upside with the next target coming in at $2.762.

At 12:24 GMT, July natural gas is trading $2.690, up $0.037 or +1.39%.

The move is likely being fueled by a surge in spot prices in reaction to surprise short-term forecasts calling for chilly weather and precipitation in heavy Northeast demand areas. According to the Natural Gas Intelligence Spot Gas National Average jumped 14.5 cents higher to $2.300/MMBtu.

Colder than normal temperatures and stormy conditions, including snow in some areas, is expected in the Northeast to start the week, causing spot prices to shoot higher across the Northeast Monday.

The National Weather Service (NWS) was calling for “an amplifying mid to upper level low across the Northeast and deepening surface low pressure off the New England coast” to result in stormy weather Monday night through Wednesday from New York state into New England.

“Temperatures are expected to be much below average Tuesday into Wednesday across these areas, with high temperatures 20 to 24 degrees below average,” the NWS said, adding that the cold temperatures were expected to “support late season high elevation accumulating snows” in the region.

Daily Forecast

The near-term direction for prices will likely be determined by trader reaction to the $2.679 to $2.713 retracement zone. We’re in a momentum driven market because of short-term weather concerns.

If by chance the surprisingly strong weather in the Northeast extends beyond Wednesday then look for speculative buying and short-covering to drive prices through the upper level at $2.713.

If the weather returns to normal during the latter half of the week then look for sellers to drive prices back under $2.679.

Additionally, EBW Analytics Group says, “the outlook for late May into June points to multiple triple-digit storage injections in the weeks ahead. We expect the year/year storage surplus to soar past 200 Bcf and the deficit versus the five-year average to decline sharply, pushing gas prices back down.”

NatGasWeather says the coming weather pattern could create enough demand to keep inventory builds from “getting excessively large,” but the forecaster still expects triple-digit weekly injections to be the result.

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