Prompt month gas prices surged higher Tuesday as forecasts continued to show extremely cold readings through the end of next week. The cold will push demand levels up to their highest levels season to date, helping tighten the market balance. There are also concerns output will be impacted by freeze offs. Feb futures settled 21 cents higher, or 7%, while the March contract tacked on 9 cents.
Output has backed off of all time highs, moderating slightly this month. Production this morning is estimated at 100.8 BCF/day. Month to date, production is averaging about 102.8 BCF/day, more than 1 BCF/day lower than December’s average. Given lower drilling activity and the possibly of production freeze offs, we could see even further moderation in output levels.
Arctic cold from Canada will plunge into the Central US early next week, leaving temps strongly below normal across this region. Cold is more limited across the East with temps there not quite as cold as the Central US. Some moderation is expected late in the 6-10 day period across the SW but much below normal readings will remain in place across the central portion of the country. Not until late January do we really see a break down in the cold.
Another volatile day of trade on Tuesday on very heavy volume as the spot February contract rallied up to a 3.392 high before pulling back into the close to finish the day at 3.190, up .210 or 7%.
Daily volume came in at an extremely high 350,780 contracts which could be indicative of a blow-off top having formed.
The early-November gap between 3.405-3.450 was nearly closed on Tuesday and remains a supportive feature as it will eventually be closed over time.
The 78% retracement resistance of the October-December downtrend was reached and broken on Tuesday at the 3.325 level. This turns the final 88% retracement at 3.465 into the next area of resistance above yesterday’s 3.392 high if buying continues.
2.980-3.000 is near term support followed by the 10 day moving average currently at 2.790.
10, 40 and 200 day moving average alignment is bullish as are the short and long term trend following indicators.
Moving Average Alignment – Bullish
Long Term Trend Following Index – Bullish
Short Term Trend Following Index – Bullish
Relative Strength Index – 63.04
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