Natural Gas Strengthens Over $4.600, Weakens Under $4.460

Natural gas futures are inching higher on Wednesday after posting a more than 1% gain the previous session. The catalysts behind the move were forecasts calling for cooler temperatures and higher heating demand over the next two weeks. Futures were also dragged higher by a 10% jump in European gas futures that could keep U.S. liquefied natural gas exports near record highs.

At 12:16 GMT, April natural gas futures are trading $4.459, down $0.002 or -0.04%.

Tensions between Russia and Ukraine Underpinning Prices

A rise in natural gas prices in Europe is helping to keep upward pressure on U.S. prices. European prices rose as tensions between Russia and Ukraine escalated after Moscow ordered troops into two breakaway regions in eastern Ukraine.

Britain on Tuesday imposed sanctions on Gennady Timchenko and two other billionaires with close links to Russian President Vladimir Putin, while Germany halted the Nord Stream 2 Baltic Sea gas pipeline project, designed to double the flow of Russian gas direct to Germany, Reuters reported.

The United States and Europe have said they would sanction Russia if it invaded Ukraine. This could prompt Russia to cut exports to Europe, where Russian provides around 30%-40% of gas supplies, about 16.3 bcfd in 2021.

Rising US Gas Demand, LNG Exports

Data provider Refinitiv estimated 383 heating degree days (HDDs) over the next two weeks in the Lower 48 U.S. states. The normal is 358 HDDs for this time of year.

Refinitiv projected average U.S. gas demand, including exports, would rise from 119.9 billion cubic feet per day (bcfd) this week to 123.2 bcfd next week as temperatures drop. Refinitiv also said the amount of gas flowing to U.S. LNG export plants has averaged 12.6 bcfd so in February, which would top January’s monthly record of 12.4 bcfd.

“We expect a strong desire to beef up inventories through Asia and Europe during the coming months to maintain U.S. LNG exports at a capacity pace regardless of Ukrainian developments,” advisory firm Ritterbusch and Associates said in a note.

Finally, Refinitiv said average gas output in the U.S. Lower 48 states fell from a record 97.3 bcfd in December to 94.0 bcfd in January and 93.2 bcfd so far in February, as cold weather froze oil and gas wells in several producing regions earlier in the new year.

Daily Forecast

The main trend is up, but April natural gas futures are struggling to sustain the current upside momentum. This situation in Ukraine is potentially bullish on paper over the long run, but not expected to have much of an impact over the short-term. Had the events unfolded at the onset of winter in Europe, prices probably would’ve moved sharply higher.

Technically, the main trend is up, but Tuesday’s reversal down indicates momentum may be getting ready to shift to the downside. A trade through $4.730 will signal a resumption of the uptrend. A move through $3.867 will change the main trend to down.

The short-term range is $5.053 to $3.867. The market is currently testing its retracement zone at $4.460 to $4.600. Trader reaction to this zone will determine the near-term direction of the market.

A sustained move over $4.600 will be a sign of strength. Taking out $4.730 could trigger an acceleration into the February 2 top at $5.053.

Look for a downside bias on a sustained move under $4.460. If this move generates enough downside momentum then look for the selling to possibly extend into $4.218 to $4.021.