Looking to the Futures

Futures on natural gas (/NG, currently set for February delivery) jumped nearly 40 cents at the open on Sunday evening. The contract had settled at $3.103 on Friday, the lowest settlement price since October, and the lowest price in years for the February contract (/NGG26) specifically. Following a cold weekend and forecasts for more cold weather over the coming weeks, the contract opened at $3.50 on Sunday. That gap up was the largest upward move on a weekend in over three years. It then climbed another 49 cents to top out at $3.99 Tuesday morning before settling at $3.907. This morning it jumped again to $4.949. While frigid forecasts lifted the contract, healthy supply could keep a cap on prices.

Much of the country is experiencing below average temperatures, with cold weather alerts from the Midwest through the Northeast and also in Florida, where Tampa saw a low below 40 degrees Monday. Another clipper brought more cold to the Great Plains yesterday and is likely causing snow over New York as you read this. There’s more frigid weather expected east of the Rockies through the weekend. That forecast includes snow across the Midwest and freezing rain across the South in a storm labeled Winter Storm Fern by The Weather Channel. Further out, the National Weather Service predicts below average temperatures for the next two weeks for the eastern half of the country.

While demand for natural gas for heat is up due to the temperatures, supplies are healthy. Nationally, the first three weeks of the year had an average of 7 fewer heating degree days than last year and 17 days fewer than the long term average. Heating degree days are a useful measure of heating demand, comparing the average of the daily high and low temperatures and comparing them to 65F. A low of 35F and a high of 40F results in 35F and 30 heating degree days for that day.

Partly as a result of the warmer weather over the past few weeks, the Energy Information Administration’s Weekly Natural Gas Storage Report had gas in storage at 3,185 billion cubic feet (bcf). That represented a decrease of 71 bcf for the week but was 1% above last year and 3.4% above the five-year average. Inventories are forecasted to decline to 1,924 bcf through the end of March, resulting in supplies 5.8% higher than the five-year average at the end of withdrawal season. The average price for the year is expected to be $3.50/MMBtu, down 2% from last year. Liquefied natural gas departures carried 127 bcf from U.S. ports in the most recent report. Spot prices at their likely destinations were $9.59 in East Asia and $10.22 in Europe. The Baker Hughes Rig Count showed a decline of two rigs to 122 operating natural gas rigs.

A head-and-shoulders pattern shows up on the six-month daily chart with the head at the top in December. Today’s spike up to the price level seen in early December could be a return to trend or a temporary move. This week’s action brought the contract past the 9-day, 20-day and 50-day SMAs for the first time since December. The 14-day RSI went above the midline and is approaching overbought status. The DMI shows a bullish trend of increasing strength based on the moves since Friday.

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