By: Heather Wine, Senior Risk Manager - Energy
The spot month gas contract capped a wild and unforgettable week with a 70% surge as the market braced for an intense Arctic blast set to bring snow, ice and subzero temps to the central and Eastern US. The storm was expected to cause additional freeze offs and widespread power outages, alongside surging demand that will drive massive storge withdrawals in the weeks ahead. The Feb contract ended Friday’s session up 23 cents at $5.275.
Much to strong below normal temps will persist this week across the East. While the cold pattern extends into the 6-10 day period, its coverage moderates, focusing mostly on the Midcon and Southern US. The intensity of the cold eases further during the 11-15 day period as above normal temps gradually shift east.
The weekend storm has brought a large spike in heating demand with res/comm usage estimated today at 67.6 BCF/d, more than 9 BCF/d higher than last Monday. Power burn has also risen nearly 10 BCF/d week over week, coming in this morning at 49.4 BCF/d. On the flipside, LNG feedgas demand fell to 12.1 BCF/d over the weekend, projected this morning at 13.7 BCF/d, well below the month to date avg of 17.9 BCF/d. Total demand for today is estimated at 178.1 BCF/d, 36.3 BCF/d higher than the month to date average.
Concerns over production disruptions intensified on Friday as forecasts pointed to significant supply curtailments. Early projections showed the Arctic blast triggering freeze offs of up to 12 BCF/d. Weekend data however indicated freeze offs surged beyond 17 BCF/d, sharply reducing output while cutting into near term supply. Output fell below 100 BCF/d over the weekend, with volumes this morning estimated at 97.6 BCF/d, bringing the month to date avg down to 106.8 BCF/d.
Source: StoneX
Explosive price action in the natural gas market last week as the February 26 contract set the largest percentage price gain in history.
The February contract topped out at a 4-year high at 5.650 in last Thursday’s trade closing Friday’s session at 5.275, up 1.698 (70%) for the week.
Volume spiked over the first three days of trade last week registering 410,520 contracts in early week trade. But by Friday’s close, the volume had shrunk to 107,108 contracts.
While the spike in volume early trade last week is not an outright sell signal, sharp increases in volume tend to coincide with turning points in the market.
A gap higher open today reached a 6.293 overnight high but the February contract has since pulled back from the overnight high. Volume so far in today’s session has registered just 29,365 contracts.
The trend remains up, but the February contract could be reaching an exhaustive phase. The bottom of the overnight gap at 5.450 is near term support followed by 4.650-4.700.
A breakout above the 6.293 overnight high will turn 6.490-6.500 into the next upside resistance.
Moving Average Alignment - Neutral-Bullish
Long Term Trend Following Index – Bearish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index - 74.68 (in overbought area)
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