By: Heather Wine, Senior Risk Manager - Energy
The Feb contract maintained upward momentum on Tuesday while the soon to be spot month March contract settled lower on the day. Winter weather continues to wreak havoc on nat gas prices as demand remains extremely elevated while a substantial amount of production is still offline. Low volume in the Feb contract ahead of today’s expiration led to a very wide trading range of $1.54. The Feb contract rose 15.4 cents to settle at $6.954.
The next 5 days will continue to feature extreme cold in the east with temps running significantly colder than normal. The cold moderates during the 6-10 day period but becomes more intense across the NE during the 11-15 day period.
Production shut ins and freeze offs have left output down about 10 BCF/day from pre storm levels. This is setting the stage for massive storage withdrawals over the next few weeks. Platts estimates tomorrow’s report covering the week ended Jan 23 is projected to show a draw of 231 BCF while Reuters is calling for a pull of 202 BCF. This compares to the 5 yr avg pull of 208 BCF and last year’s draw of 307 BCF. For the current week, withdrawal estimates are as high as 389 BCF, which would outpace the current record withdrawal by 30 BCF.
Production is slowly coming back online but could fall again with more extreme cold on the way this weekend. After trailing below 100 BCF/d the past 3 days, output is estimated this morning at 101.5 BCF/day. The month to date average has fallen slightly to 106.3 BCF/d, up 3.6 BCF/d from last year.
Source: StoneX
Today’s expiring February 26 natural gas contract traded in a wide 1.538 range in Tuesday’s session but ended the day with a .154 gain settling at 6.954.
A potentially bearish inside range day was also set but needs follow through selling today for confirmation.
The March 26 contract which will become the spot contract on today’s close is currently trading 2.380 below the price of the February 26 contract.
This will create a massive overhead gap on the daily continuation chart.
For the February contract, weekly low support is at 5.728 today followed by 5.430 which will close the gap created on Monday’s open. 10 day moving average support is next at 4.860.
Monday’s 7.439 high remains primary resistance. If broken, 7.500 and 7.990-8.000 will become the next areas of resistance.
Moving Average Alignment - Bullish
Long Term Trend Following Index – Bearish
Short Term Trend Follow Following Index - Bullish
Relative Strength Index - 65.10
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