Bearish Forecast Swing Prompts Swift Reversal After 'Overdone' Natural Gas Futures Rally - Natural Gas Intelligence

Bearish Forecast Swing Prompts Swift Reversal After ‘Overdone’ Natural Gas Futures Rally - Natural Gas Intelligence
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Bearish Forecast Swing Prompts Swift Reversal After ‘Overdone’ Natural Gas Futures Rally

A steep decline in March heating demand expectations over the weekend prompted a hasty retreat for natural gas futures in early trading Monday, erasing gains from a rally that had perhaps pushed prices too high, too soon.

The April Nymex contract was off 36.6 cents to $2.643/MMBtu as of around 8:45 a.m. ET.

Anticipated March cold had helped the April contract nose above the $3 mark last week, but much of that projected heating demand evaporated from forecasts over the weekend.

The American weather model shed 25 heating degree days (HDD) from the 15-day forecast, while the European model dropped “an even more massive” 32 HDD from the outlook, according to NatGasWeather.

“Warmer trends weren’t a surprise, since as we mentioned Friday the primary risk was…some sort of warmer break between cold shots or warmer trends could show up in the weekend data,” NatGasWeather said. However, “trending 25-32 HDD warmer was clearly much larger than expected.”

Models advertised less cold for Wednesday through Saturday by showing less frigid air advancing into the southern half of the Lower 48, according to the firm.

“The weekend weather data maintains colder reinforcing shots March 12-18, with most of the U.S. still cooling below normal, just not as impressively cold as Friday’s data showed,” NatGasWeather said. Forecasts maintained a cooler-than-normal pattern for March 19-24, but “the risk is the weather data fails to hold it and trends warmer in time, as the latest data suggested.”

Alongside other factors, including coal-to-gas switching in the electric sector and the restart of the long-idled Freeport LNG export terminal, the chilly March temperature outlook had “aligned with supportive technicals” to help drive a “short-covering rally,” EBW Analytics Group analyst Eli Rubin said of last week’s gains for the April contract.

“The volatile March weather pattern imploded over the weekend, however, and slashed fundamental support underlying recent price gains,” Rubin said. “This morning’s swift correction lower is in part a market reaction to last week’s rally overextending to the upside.”

Among potentially supportive developments, estimates indicate liquefied natural gas demand hit a record high over the weekend, the analyst said. Further, EBW estimates still point to tighter balances narrowing the year-on-five-year-average storage surplus later this month.

“Still, the magnitude of last week’s rally appears overdone and sets up a test of key technical support at $2.66 early this week,” Rubin said.

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