Natural gas is holding on to earlier gains after gapping higher on the opening on Monday. The price action is likely being fueled by short-covering and profit-taking in reaction to oversold technical conditions and a change in the short-term weather forecast.
Technically, some traders feel last week’s sell-off may have been a little overdone given that there are five more weeks left in winter. Additionally, there are reports that the European weather model is now calling for colder temperatures.
At 07:41 GMT, March natural gas is trading $2.673, up $0.90 or +3.48%.
Short-Term Weather Outlook
According to NatGasWeather for February 8 to February 14, “Cold air over the Midwest will continue to fan out and advance into the southern and eastern U.S. today and Saturday, including with a wintry mix of precipitation along the cold front across the East. Temperatures behind the core of the cold front will drop into the -20s to 20s, but also with teens to 30s into Texas and the South. The West will be unsettled and cool to cold. A mild break will return across the southern and eastern U.S. early next week before another cold shot arrives mid-week with warming then following late week. Overall, national demand will be high Friday-Monday, then moderate for the rest of next week.”
U.S. Energy Information Administration Weekly Storage Report
The EIA reported a 237 Bcf withdrawal from storage inventories for the week-ending February 1. The number was about 10 Bcf higher than the consensus estimate.
Total working gas in storage as of February 1 stood at 1,960 Bcf, 135 Bcf below last year and 415 Bcf below the five-year average, the EIA said.
Traders are saying that Friday’s rally and possibly today’s early strength is being fueled by weather models that are trending colder while forecasting another cold snap for around February 18 with the possibility of additional cold to follow.
The new forecast is not predicting anything like the temperatures the U.S. experienced two weeks ago. Since that system didn’t generate much upside action, this new pattern of systems, which are expected to be comparatively milder, is not expected to drive prices too much higher.
The Global Forecast System is indicating cold temperatures for February 16-22. On Friday, the European model turned colder. If both models continue to agree then combined with technically oversold conditions, we could see the rally extend into $2.978 to $3.079 over the near-term, but this would only occur under ideal conditions.
This article was originally posted on FX Empire
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