After posting a mostly sideways trade throughout the week, natural gas futures surged late in the week in reaction to bullish U.S. government data. A report from the Energy Information Administration showed the extremely cold weather in the U.S. the week before led to the biggest drop ever recorded for natural gas stockpiles.
For the week, March Natural Gas futures settled at $2.993, up $0.248 or +9.03%.
According to the U.S. Energy Information Administration, U.S. weekly inventories of natural gas tumbled by 359 billion cubic feet the week-ending January 5, topping the previous record decline of 288 billion four years ago. Traders were looking for a drawdown of 318 billion cubic feet.
Inventories totaled 2.767 trillion cubic feet as of January 5, 12.1 percent below the 5-year average and 13 percent below year-earlier levels, according to the EIA.
The subsequent rally in the March futures contract put the market in a position to challenge the January 2 top at $3.035. Taking out this level will lead to a continuation of the short-term uptrend, but I don’t think it is going to lead to the start of a new bull market.
If the weather cooperates and temperatures remain near average, I expect producers to replenish supplies very quickly which would put a lid on any rallies.
Forecast
Looking ahead to this week, this winter season’s range is $3.272 to $2.532. Its retracement zone is $2.902 to $2.989. Trader reaction to this zone will control the near-term tone of the market. Look for an upside bias on a sustained move over $2.989 and for a downside bias on a sustained move under $2.902.
As far as the weather is concerned, NatGasWeather.com says “overall, national demand will be increasing to high this weekend through next week.
For the week of January 12, we expect the EIA report to show a draw of -195 Bcf. That would compare with -243 Bcf last year and -215 Bcf for the five-year average.
This article was originally posted on FX Empire
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