Uncertainty over the extent of winter cold through February put downward pressure on natural gas futures in early trading on Tuesday. The February Nymex contract was down 5.6 cents at $3.971/MMBtu around 8:50 a.m. ET. March was down 3.8 cents at $3.837.
The European weather model knocked heating demand out of the overnight outlook for the first few days of February, reversing colder trends from Monday afternoon, according to NatGasWeather.
European and US models also continued to differ on the extent of the cold arriving from February 4-7, suggesting that the pattern during this period “may not be cold enough to satisfy” traders without better model agreement. , added the firm.
“There is still strong national demand over the coming weekend,” including freezing temperatures in the northern and eastern United States, NatGasWeather noted. “However, more recent weather data is now too warm for February 1-3 due to a stronger breakout over the southern and eastern United States”
Tuesday’s latest data suggests the cold could potentially spread from the Rockies and Plains to the rest of the Lower 48 north Feb. 4-7, according to the firm.
Natural gas markets will have to “decide if they can ignore softer domestic demand Feb. 1-3 as long as a cold pattern returns Feb. 4-7,” NatGasWeather said.
However, the European model’s lack of agreement raised doubts ahead of Tuesday’s session over whether the chill will pass, emphasizing subsequent model runs to provide more clarity, according to the firm.
Meanwhile, freezing weather arriving this week should add “spice” to the physical market as heating demand will rise by around 38.3 gas-weighted heating degree days tomorrow, according to analyst Eli Rubin. principal of the EBW Analytics group.
Physical market price action in response to the impending cold could complement “the upcoming February contract renewal as price volatility increases over the next three days,” Rubin said. “By next week, however, weather-driven gas demand could fall by 11.2 Gcf/d as recovery from production freezes adds 1-2 Gcf/d of supply – likely guiding the March contract down in its first week as the front-month.”
Meanwhile, from a technical standpoint, the 9.3 cent rally for the March contract on Monday failed to offer a decisive sign of action at the bottom, according to ICAP analyst Brian LaRose. Technical Analysis.
“A ‘up’ day, but not enough of a rally to convince us that we have a classic ‘cup with handle’ bottom,” LaRose said of the recent price action. “The Bulls will have to do more and fast. In the event that the bulls are unable to take off, they risk allowing the bears to try more critical support.
LaRose set key support targets at $3.617, $3.536, $3.416 and $3.355, marking them as the “bears need to break to trigger a decline to $3 or lower” levels.
