Natural gas futures are trading lower on Wednesday after an early rally failed to attract enough buyers to sustain the move. The early rally confirmed yesterday’s technical closing price reversal bottom, but the lack of follow-through to the upside suggests the move was likely fueled by short-covering and weak buy stops.
At 08:48 GMT, May natural gas futures are trading $2.783, down $0.014 or -0.50%.
The catalyst behind Tuesday’s reversal was a forecast putting a little more cold into the market, and concerns over low stockpiles headed into the spring. Helping to limit gains were a short-term forecast for warmer temperatures for the eastern half of the Lower 48.
The weather data that trended lower on Tuesday afternoon came from Bespoke Weather Services, which added a few gas-weighted degree days back to the 15-day forecast. They said the news was “supportive in light of the current storage deficit.”
“While we still see risk as very low of getting to 1.0 Tcf by the end of the month, we will undoubtedly still have quite a deficit to last year, which will keep a floor underneath prices until it is clear that we will have no issue making that up,” Bespoke said. “We feel that in the near term, that floor is the $2.70-2.75 zone,” unless there is a “bearish surprise” in Thursday’s Energy Information Administration (EIA) storage report.
“Having said that, balances remain weak, and we currently do not see a major bump in weather demand that would assist in any re-lightening, so the reality is that we are range-bound for a while,” absent a storage surprise or a stronger shift in the forecast.
Short-Term Weather Outlook
NatGasWeather says for March 13 to March 19, “Temperatures will rapidly warm across the Great Lakes and East the next several days with highs of 50s to near 70F from Chicago to NYC. The southern US and Mid-Atlantic Coast will be spring-like with highs of 60s to 80s for very light demand. A strong storm will track through the Rockies and central US with rain and snow Wednesday-Thursday, but with only modestly cold air that will push as far south as North Texas. The West remains unsettled but warming late this week. Colder weather systems will sweep East of the Rockies this weekend through next week with lows of 0s to 30s for stronger demand. Overall, national demand will ease to moderate-low late this week, then back to high late this weekend.”
Daily Forecast
The main range is $2.592 to $2.896. It 50% to 61.8% retracement zone at $2.744 to $2.708 is the primary downside target. Buyers are likely to show up on a test of this zone since it represents value.
With the winter heating season ending, the focus for traders will be shifting on season-ending supplies. Energy Aspects is estimating the March-end carryout at 950 Bcf, compared to 1.0 Tcf a week earlier. This number is supportive for deferred futures contracts.
Additionally, Energy Aspects analysts are saying, “We project the largest-ever weekly withdrawal in any March on record, of 220 Bcf for the week-ending March 8, easily topping the 198 Bcf draw in the first week of March 2015.”
“Injection season 2019 balances are sending the same signal as this time last year – namely, that end-October storage carryout is set to be at a critical balancing point of 3.4 Tcf, assuming 10-year normal weather.”