Natural gas futures are spiking higher early Tuesday as traders continue to react to expectations of strong heating demand as cold winter blasts hit the highly populated Midwest and parts of the East Coast. Traders are also crediting the massive snowstorm in New York, Washington, Boston and other high demand areas in the East for the surge in prices.
At 10:12 GMT, March natural gas is trading $2.976, up $0.126 or +4.42%.
‘Major Shift’ in Longer-Term Weather Pattern
According to Natural Gas Intelligence (NGI), “A major shift colder in long-range weather outlooks sparked a massive rebound in natural gas futures on Monday. With the double shot of polar air setting up sustained strong demand and potential production curtailments because of freeze-offs.
The so-called “widowmaker” spread, which mostly has traded in contango since December, moved into backwardation on Tuesday, indicating the market is not completely pricing out fears of a storage crunch this winter.
American and European Weather Models Move Closer in Agreement
Last week ended with a divergence between the American and European weather models, but the latest computer runs are now showing significantly colder temperatures through the middle of February. Several inches of snow have already fallen across much of the Northeast at Monday’s close, but the worst of the winter blast had yet to arrive.
Bespoke Weather Services said the closer alignment of the weather models was driven by a much stronger negative North Atlantic Oscillation block. As a block, the cold that dumps into the nation this weekend would be unable to lift out quickly, getting “stuck” longer in the Midwest to East.
“There is also the potential for another stronger shot of cold around mid-month, but could be more of a central/west issue,” the forecaster said.
Odds of Further Price Increases are High
The latest weather data added roughly 50 Bcf to the demand outlook for the next couple of weeks, solidifying the move past the $2.800 mark for Nymex futures, at least for now. EBW Analytics Group said after recent huge gains, the weather models could lose some demand in subsequent runs. However, over the next few days, the odds of further price increases are high.
It took some time, but March natural gas futures are finally breaking out over the key Fibonacci level at $2.918. This is an important level because other than an old top at $3.062, there isn’t any true resistance until the October 30 top at $3.320.
In order to get to this level, buyers are going to have to come in and defend the market on any pullbacks into $2.918. If they fail to do so then the market could pull back to the 50% level at $2.794.
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