Nat gas edged higher Tuesday following early morning declines as midday weather forecasts trended slightly colder. Below zero temps next week are expected to flip the long standing 5 yr avg surplus into a deficit. The cold front is also expected to cause more freeze offs, further tightening the supply/demand balance. The likelihood of moderating temps come February kept the upside limited. Feb futures settled 3.4 cents higher at $3.968.
A massive storage withdrawal is expected in tomorrow’s report as frigid temps last week prompted a surge in heating demand. Consumption for the week ended Jan 10 jumped more than 30 BCF/day versus the week prior. Platts is calling for a pull of 251 BCF, which would be more than 6 times larger than the previous week’s draw of 40 BCF and about twice the size of the 5 yr avg draw of 128 BCF. If correct, stocks would fall to 3.122 TCF, narrowing the 5 yr avg surplus to 84 BCF.
More intense cold is expected next week, resulting in further significant withdrawals. Early estimates for the week in progress call for a draw of 265 BCF, which compares to the 5 yr avg draw of 167 BCF.
Demand levels are projected to spike this weekend into next week as arctic cold moves across the US, including Texas and the South. Conditions for Jan 20-22 will be the coldest of the season so far with the Midwest and East seeing the highest risk.
Total demand is coming in this morning at 153.3 BCF/day, down 1 BCF from Tuesday. Platts is projecting demand will rise to an average of 156.7 BCF/day during the coming week before declining to 142.4 BCF/day during the 8-14 day period.
According to the EIA, demand growth this year will outpace supply, leaving supplies at a 4% deficit to the 5 yr avg by the end of the year. Overall demand is expected to rise by 3.2 BCF/day while production and exports combined will increase by 1.4 BCF/day this year. LNG exports are seen rising by 2.9 BCF/day this year with growth driven by Plaquemines and Corpus Christi’s Stage 3. Next year, exports could rise by another 2.1 BCF/day, reaching an avg of 16.2 BCF/day given the startup of Golden Pass.
After oscillating between positive and negative territory overnight, the spot month saw an early morning rally back above $4. The volatility continues to stem from uncertainty over the intensity of next week’s cold along with its impact on supply and demand.
Technical Analysis
At one point on Tuesday, the spot February 25 natural gas contract was down nearly .200 from Monday’s close as it tested 10 day moving average support at the 3.736 daily low.
With support holding, the trend turned back higher into the close as the February contract retested lower-4.000 resistance before closing the day at 3.968, up .034.
For a 3rd time over the past three weeks, the February contract rallied over the 4.000 level but couldn’t close with a 4 handle.
The primary trend remains up although a bearish divergence has formed on the daily RSI index which could indicate a top is forming.
Monday’s 4.369 high is primary resistance. If broken, the November 2014 weekly high at 4.544 will become the next area of resistance.
10 day moving average support on the daily continuation chart is at 3.735 today with longer term 40 day moving average support at 3.445.
Moving Average Alignment – Bullish
Long Term Trend Following Index – Bullish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index -58.74
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