Natural Gas Price Fundamental Weekly Forecast – Needs Cold to Continue Beyond March 15 to Sustain Rally

We’re probably looking at the last rally of the winter season. Even in the most bullish scenario, there are just not enough bullish catalysts in the market to sustain the current rally.
James Hyerczyk
Natural Gas

Natural gas futures rose to their highest level since January 25 on heavy short-covering ahead of the week-end. Cold weather the first week of March has been expected for some time. However, it’s the March 11-15 period that is making short-sellers nervous. Going into the week-end, models for this time period have been leaning to the colder side.

For the week, April natural gas settled at $2.859, up $0.120 or +4.38%.

Bespoke Weather Services said, “The overall theme remains that we see one of the coldest starts to March that we’ve seen in many years, but the shift in tropical forcing patterns means that we see changes by the middle of March that are likely to bring a milder pattern to much of the nation.”

“There is also risk that models are showing too much cold at the surface out in the 11-15 day time frame, given the changes already seen in the upper level pattern at that point in time.”

“While we have often observed models to be too fast on calling pattern changes, we do believe that, from here, risk of GWDD losses is higher compared to risk of moving colder.”

Weekly April Natural Gas

Short-Term Weather Outlook

According to NatGasWeather for March 1 to March 7, “It will remain warm across the southern U.S. & Mid-Atlantic Coast into the weekend with highs of 60s to 80s, then becoming much colder this weekend through next week with lows of 20s and 30s, locally teens. The West remains cool and stormy as weather systems bring rain and snow. Most importantly, frigid air over the Plains will spread south and east this weekend through next week with widespread lows of -20s to 20s, including 20s and 30s into Texas portions of the southern U.S. for very strong national demand. Overall, national demand will be increasing to high-very high late this weekend next week.”

U.S. Energy Information Administration Weekly Storage

On Thursday, the U.S. Energy Information Administration (EIA) reported that domestic supplies of natural gas fell by 166 billion cubic feet for the week ended February 22. That was below the 172 consensus forecast.

Total stocks now stand at 1.539 trillion cubic feet, down 154 billion cubic feet from a year ago and 424 billion below the five-year average, the government said.

Weekly Forecast

We’re probably looking at the last rally of the winter season. Even in the most bullish scenario, there are just not enough bullish catalysts in the market to sustain the current rally.

We could see another short-covering spike early in the week if there was a surprise jump in cash market demand over the week-end, but for the most part, the worst of the cold has been fully price into the market. Furthermore, once the coldest temperatures have passed, prices are likely to flatten before the speculators begin to unload their counter-trend long positions.

The key time frame remains March 11-15. If the models start to show a warming trend for that time period, the rally could come to an abrupt end.

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