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James Hyerczyk

Natural gas futures finished slightly lower last week after a mid-week short-covering rally failed to attract enough speculative buyers to sustain the move. After gapping lower on Monday and trading down to a multi-year low, the market posted a potentially bullish technical signal that led to a notable two-day short-covering rally. However, the rally died on Thursday after a weekly government storage report failed to impress, leading to Friday’s lower close.

Last week, April natural gas settled at $1.831, down $0.061 or -3.22%.

Ahead of the long U.S. holiday weekend, the latest weather data gave bullish traders enough momentum to prevent another swing down to multi-year lows, however, a break in the cash market suggested the next cold shot expected to hit the market late next week will be milder than previously expected.

Short-Term Weather Outlook

According to NatGasWeather for February 14 to February 20, “A frigid cold shot will sweep across the Midwest and Northeast into Saturday with lows of -20s to 10s for strong demand. A mild break will follow across the South and East late this week-end into early next week with highs of 50s to 70s returning. However, another cold shot will sweep across the northern US during the second half of next week with lows of 0s to 20s returning across the Midwest and Northeast for strong national demand. The West will see a mix of mild and cool weather systems.”

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U.S. Energy Information Weekly Storage Report

On Thursday, the EIA reported a 115 Bcf withdrawal from storage for the week-ending February 7. This was a little on the bullish side of the estimates, but since it was old news, it didn’t have much of an effect on prices.

The reported draw was above last year’s 101 Bcf figure, but below the five-year average draw of 131 Bcf.

Total working gas in underground storage stood at 2,494 Bcf as of February 7, 601 Bcf higher than year-ago stocks and 215 Bcf higher than the five-year average, according to EIA.

Daily Forecast

With traders generally looking a week to two weeks into the future, this week’s trading action will likely  be influenced by the weather forecasts for February 22-26 and February 28 to March 1.

The forecast for February 22-26 shows a rather mild break across most of the United States. While not being bearish per se, this forecast probably means the market will have a hard time sustaining a rally above its near-term range. Cold temperatures are expected to make a return February 28 to March 1

NatGasWeather says “If this (the forecast) were to hold through the weekend break, the back end would be cold weighted. Essentially, both the GFS and European models are very similar on the overall pattern into March 1. They both added some demand back in the latest data, but that milder break February 23-26 stands out. It might be overlooked as long as the February 28 – March 1 period proves to show cold pushing back into the northern United States after the weekend break.”

Based on the two forecasts, look for weakness early in the week, but then watch for support to reemerge late in the week.

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