Natural gas futures tumbled last week in reaction to a change in the two-week weather forecast to milder temperatures than previously forecast. The selling was strong enough to erase move than 50% of the more than month-long rally in only two trading sessions.
March Natural Gas futures settled at $2.846, down $0.329 or -10.36%.
Last week’s weekly government report showed a smaller-than-expected draw last week, but it wasn’t enough to shift momentum to the upside.
The U.S. Energy Information Administration (EIA) reported that domestic supplies of natural gas fell by 99 billion cubic feet for the week ended January 26. This was slightly below the consensus average guess of 100 bcf.
The five-year average withdrawal is 160 billion.
Total stocks now stand at 2.197 trillion cubic feet, down 526 bcf from a year ago, and 425 bcf below the five-year average, the government said.
Forecast
This week, traders will continue to monitor the 8 to 14 day forecast for clues as to the demand for natural gas. The longer-term trend is bullish, in my opinion, due to the relatively low supply. However, sellers could continue to probe the downside until the weakest long is shaken out of the market.
The major range is $2.532 to $3.259. Its retracement zone is $2.896 to $2.810. The minor range is $2.693 to $3.259. Its retracement zone is $2.976 to $2.909.
Combining the two retracement zones creates a key pivot area at $2.896 to $2.909. Trader reaction to this area is likely to determine the direction of the natural gas market this week.
NatGasWeather.com, for the February 2 to February 8 time period, says, “Cold air will cover the Midwest and East today with highs of single digits to 30s, and with lows of 20s to -10F, including 20s and 30s into the southeastern U.S. A brief break will occur Sunday ahead of the next cold short arriving early next week, with a second one to follow at the end of the week. The western and south-central U.S. will be mostly mild apart from the wetter Northwest. Overall, national demand will be high.
This weekend’s cold snap has been priced into the market, so the focus will likely be on the cold system hitting at the end of the week. If the forecast for this front changes to much colder temperatures then we could see a short-covering rally. If milder temperatures are put into the forecast for the end of the week then prices could drift sideways to lower.
A sustained move over $2.909 will be the first sign of buyers. A sustained move over $2.976 will indicate the buying is getting stronger.
A sustained move under $2.896 will signal the presence of sellers. A sustained move under $2.810 will indicate that the selling is getting stronger.