Natural gas futures are trading higher on Tuesday, continuing yesterday’s technical breakout to the upside. The move is being fueled by a weather forecast calling for increasingly colder temperatures for the early part of March. Furthermore, after a brief moderation in temperatures around March 10, the cold trend could resume. The current cold spell currently hitting the Eastern, Midwestern and Western United States is also driving up spot gas prices.
At 09:23 GMT, April Natural gas futures are trading $2.829, up $0.014 or +0.50%.
Short-Term Weather Outlook
According to NatGasWeather for February 25 to March 3, “A cold shot sweeping across the Ohio Valley and Northeast Monday into Tuesday will give a bump to demand before warming back into the 40s and 50s Wednesday-Friday. It remains very cold across much of the Midwest with lows of -10s to 20s. Mild high pressure will dominate the South & Mid-Atlantic Coast was highs of 60s to 80s. The West will be cool and unsettled as weather systems track through. Stronger cold shots with lows of -20s to 20s will spread across the northern and central U.S. late this week, then into the East next weekend. Overall, national demand will be moderate, then increasing Friday-Monday.”
Mid-Term Weather Outlook
NatGasWeather went on to say, “Frigid cold blasts with Arctic origins are expected across the northern, central and eastern U.S. March 1-9 with lows dropping into the -20s to 20s, including 20s and 30s into Texas and portions of the South for very strong national demand. The weekend weather data trending colder the first week of March will add numerous Heating Degree Days. The coming pattern would be very bullish if it wasn’t for much of the data favoring warm conditions across the southern and eastern U.S. March 10-12, although that’s quite far out.”
Daily Forecast
The main trend is still down on the daily and weekly charts, but the upside momentum is strengthening. April natural gas is currently grinding through a series of retracement levels by triggering buy stops and encouraging several of the weaker short-sellers to aggressively cover their positions.
The main range is $3.060 to $2.565. Its retracement zone target is $2.812 to $2.871. This zone is currently being tested. Since the main trend is down, sellers could return on a test of this zone. However, the breakout will strengthen on a sustained move over $2.871. The main trend will actually turn up on the weekly chart on a trade through $2.932.
Based on the early price action, support is $2.812, $2.792 and 2.749.
The market is likely to continue to move higher as long as the cold for March 1 to March 9 remains in the forecast. Prices could surge if the cold trend is forecast to extend beyond March 12.
Remember that the rally is being primarily driven by short-covering. Speculative buying is light. Furthermore, although this predicted cold snap is expected to widen the storage deficit heading into the start of spring later in March, gains are likely to be limited because of rising production. Nonetheless, a support base could be built that could prove to be important at the start of the summer cooling season.