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James Hyerczyk
Gas tanks

Natural gas futures are trading lower on Tuesday shortly before the regular session opening. The market turned lower after hitting its highest level since December 24 earlier in the session. We’re in a weather market so volatile two-sided trading can be expected.

Furthermore, the current four day rally from 2.809 to $3.373 may have been too much, two soon, putting the market in overbought territory. Although the short-term uptrend may not be affected, the market may be ripe for a pull-back into support while investors continue to digest the weather forecasts.

At 12:30, GMT, March natural gas futures are trading $3.268 to $0.021 or -0.64%.

Short-Term Weather Forecast

According to NatGasWeather for January 15 to January 21, “High pressure will gain ground over the southern 2/3rds of the country the next several days as highs warm into the 60s and 70s over Texas, South, and Southeast. There will be glancing shots of cold across the far northern 1/3 for locally stronger demand. Of greatest interest, a frigid cold shot will push into the northern, central, and southern US this weekend with lows of -20s to 20s for strong demand. The West will see a mix of mild and cool as weather systems track inland. Overall, national demand will be moderate-low this week, increasing to very high this weekend.”

Bespoke Weather Services said changes in the weather models over the weekend were “incredibly bullish” with intense cold arriving for the latter third of January. The weather forecaster went on to say that gas-weighted degree days (GWDD) are expected to jump to near-record levels for a few days.

“We then see cold briefly relax, with GWDDs consistently running above average through this time,” Bespoke said. “There is incredible model agreement that very significant cold returns as well through the final week of January and into early February, with risks of another lobe of the tropospheric polar vortex swinging through.”

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Forecast

The market is likely to remain underpinned by the bullish six- to 10-day and 11-15 day weather forecasts, however, there is a warm period between the cold blasts that may encourage some light profit-taking. We could be looking at that today.

The current intraday chart pattern indicates that investors will have to decide between buying strength and playing for a breakout over today’s intraday high at $3.373, or wait for a pullback into the support zone at $3.091 to $3.024.

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