Natural gas futures gapped lower on the opening on the daily chart and continued to sell-off after that initial plunge. This can only mean one thing: the weather forecast has changed. Going into this week, the main concern was temperatures after March 15. Today’s price action suggests that the forecasts may now be calling for milder temperatures after this date. The new outlooks will be released later in the session.
At 07:54 GMT, May natural gas is trading $2.812, down $0.058 or -2.02%.
Short-Term Weather Outlook
NatGasWeather predicts for March 11-14, “Frigid cold will moderate across the central, northern and eastern US through the weekend with highs warming to near or warmer than normal. The southern US will be warm the next several days with highs spring-like and in the 70s and 80s. The West remains cool and unsettled as weather systems bring rain and snow. A fresh cold shot will sweep across the northeastern US early next week followed by a rapid warming mid-week where the Great Lakes and Northeast will be mild with highs of 40s to 60s, 70s and 80s over the Southeast. Overall, national demand will swing between high and moderate over the next week with more seasonal demand.”
U.S. Energy Information Administration
Last Thursday’s U.S. Energy Information Administration (EIA) weekly natural gas storage report printed a draw from supplies of -149 Bcf, slightly larger than market expectations of -141 to -146 Bcf. This was larger than the five-year average of -109 Bcf, increasing the deficit to 464 Bcf. The -149 Bcf draw also reduced supplies to 1390 Bcf.
Other News
S&P Global Platts is reporting that “Saudi Arabia says “large quantities” of natural gas have been found in the Red Sea, semi-official Saudi Gazette newspaper reported, citing the country’s energy minister Khalid al-Falih. The amounts were not specified.
Daily Forecast
The downside momentum is strong early in the session and we expect this to continue throughout the session if the new forecasts confirm the early price action with new outlooks calling for warmer temperatures than previously expected after March 15.
Currently, the professionals are driving the price action. Later in the session, speculators are expected to jump on the sell side especially those that need to liquidate long positions. This could lead to an acceleration to the downside.
Technically, the main trend turned down on the daily chart when sellers took out the previous main bottom at $2.822.
The main range is $2.592 to $2.896. If the downside momentum continues then the May natural gas futures contract should trade down to $2.744 to $2.708 over the near-term.
Looking ahead to this week’s EIA report, the draw will be much larger than the 5-year average due to frigid cold last week to increase deficits to near or slightly larger than -575 Bcf.
The United States Natural Gas Fund L.P. (UNG) was trading at $24.51 per share on Monday afternoon, down $0.72 (-2.85%). Year-to-date, UNG has gained 5.10%, versus a 4.63% rise in the benchmark S&P 500 index during the same period.
UNG currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #52 of 108 ETFs in the Commodity ETFs category.
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