Natural Gas Underpinned by LNG Demand as Traders Await ‘Coldest/Most Bullish Setup’ for Late January

Natural gas futures are edging lower in the early session on Tuesday after a gap opening the previous session failed to attract enough new buyers to sustain the move. The price action helped to identify the resistance level that has to be overcome to trigger an acceleration to the upside. It also helped to generate a new support level that could be attractive to buyers if the fundamentals continue to suggest further upside potential.

At 11:47 GMT, March natural gas futures are trading $3.804, down $0.030 or -0.78%. This is down from Monday’s high at $3.966.

Monday Recap

Natural gas prices rose to their highest level since December 3 early Monday with nearby futures closing above $4.00 for the first time this year as European calls for U.S. exports remain robust and forecasts point to continued strong domestic weather-driven demand.

Natural Gas Intelligence (NGI) reported that Thomas Saal, StoneX Financial Inc’s senior vice president of energy, said reduced production early this year in concert with cold blasts across the Lower 48 and strong demand for U.S. exports of liquefied natural gas (LNG) to Europe boosted market sentiment.

NGI also reported that EBW Analytics Group senior analyst Eli Rubin noted that production remained subdued from extended freeze-offs last week in the Permian Basin, MidContinent and the Rockies. He said output was curbed up to 4.0 Bcf/d nationally when compared to late 2021.

Near-Term Weather Forecast

Bespoke Weather Services said more freezing conditions look likely. After a brief run of seasonally mild temperatures this week, the pattern starting around January 20 is “very impressive” in terms of widespread cold, NGI reported.

Models showed “a deep trough diving into the central/eastern U.S., easily the strongest modeled pattern we have seen this winter in terms of the ensemble output,” Bespoke said Monday. “Pattern signals do suggest colder risks into the final third of the month, before hinting at a possible return of the more classic La Nina base state into February.”

Strong Liquefied Natural Gas Demand

U.S. LNG feed gas volumes held above 12 Bcf to start the week – near full capacity and within striking distance of recent records – reflecting solid demand from Asia and Europe, NGI reported.

Both continents have entered the heart of winter. Europe, in particular, is light on supplies following extreme weather and robust demand in 2021. Modest flows of gas from Russia because of political strife between that country and Ukraine have compounded supply challenges for Europe, NGI said.

Daily Forecast

March natural gas has formed a solid support base with European and Asian demand for LNG underpinning prices. Furthermore, the conditions are ripe for a breakout to the upside. However, bullish traders want to see more than “cold blasts”. They want to see a lingering polar vortex or something that lasts more than just a few days.

As NatGasWeather put it, “The focus will soon be on just how long” frigid temperatures during this time frame last. They also said the final third of January could prove “the coldest/most bullish setup” of the winter season to date.