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James Hyerczyk
Natural Gas

Natural gas futures are trading slightly lower on Monday, but remains inside Friday’s range, which suggests investor indecision and impending volatility. Although the market did not gap open in either direction, it doesn’t negate the ongoing conflict between the U.S. and European weather models. All it tells us is the data didn’t change enough in either direction over the week-end to drive the market sharply higher or sharply lower.

At 10:19 GMT, March natural gas futures are trading $2.162, down 0.006 or -0.28%.

To recap the price action on Friday: The market edged higher ahead of the weekend as new forecasts calling for more winter-like temperatures in late January were enough to encourage a few of the weaker short-sellers to book profits. Traders were hoping the weather models would make a definitive move to colder or milder over the weekend.

Daily March Natural Gas

Short-Term Weather Outlook

According to NatGasWeather for January 13 to January 19, “Very cold air will continue across the Northern Plains with highs of only -0s to 20s for locally strong demand. However, high pressure will dominate the South and East with much warmer versus normal temperatures as highs reach the upper 60s to 80s for Texas, South, and Southeast, 40s to 60s Mid-Atlantic Coast to most major Northeast cities. The West will see a mix of cool/cold weather systems with mild breaks. Colder air will release across the upper Midwest and interior Northeast Thursday through Friday for a minor increase in demand, but still light nationally. Overall, low to very low demand into next weekend.”

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U.S. Energy Information Administration Weekly Storage Report

The EIA reported last Thursday that domestic supplies of natural gas fell by 44 billion cubic feet (Bcf) for the week-ended January 3. Analysts expected a decline of 51 Bcf.

Total stocks now stand at 3.148 trillion cubic feet (Tcf), up 521 Bcf from a year ago and 74 Bcf above the five-year average, the government said.

Weekly Forecast

If the cold weather in Canada shifts to the south then look for a move to the upside. The size of the rally will be determined by how far south the cold weather will travel and whether it hits high demand areas.

Furthermore, there is always the possibility of a huge short-squeeze since the traders are loaded-up on the short side.

If the cold weather stays in Canada then prices are likely to tumble, however, it all depends on trader willingness to continue to short at such low price levels.

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