February Nymex natural gas futures were trading 9.8 cents higher at $3.138/MMBtu shortly before 9 a.m. ET Wednesday as forecasters highlighted overnight guidance showing late January cold extending further into February.
The early morning gains for the front month come after a 44.2 cent sell-off from Friday to Tuesday as guidance moderated over the Martin Luther King Jr. Day weekend.
“While there are still several frigid polar blasts to sweep across the country the next 12 days, the markets were clearly looking past them to where the weather data favored” cold retreating back into Canada by Feb. 3-7, NatGasWeather said. “Clearly, there’s no amount of milder trending data that would justify an 11% move lower since Friday,” especially as the coldest systems still are set to arrive.
NatGasWeather pointed to a colder trending overnight run from the Global Forecast System (GFS) that added 16 heating degree days to the outlook compared to Tuesday’s midday data. This included colder trends for a blast of polar air into the Lower 48 beginning around next Tuesday (Jan. 29) through Feb. 2, with subfreezing air lingering across the northern United States a couple days longer.
The European model already showed intense cold during this period and also trended colder overnight by showing the polar air sticking around a couple days longer, according to the forecaster.
“The pattern would be quite ominous if not for increasing odds of the polar cold pool retreating into Canada Feb. 4-7,” NatGasWeather said. “It’s a bit surprising the extent of selling Monday and Tuesday with the coldest polar blasts of the season still on track to arrive through Feb. 3.”
The focus for markets heading into Wednesday’s session is whether a warm-up will occur in the first few days of February, and if so, how long it will last, according to EBW Analytics Group.
“Models remain highly conflicted,” EBW CEO Andy Weissman said. “About two thirds of ensemble members indicate that if warming occurs it will be transient and followed by sustained cold. Another third, however, indicate that warmth could last for several days. The choice between these outcomes is a coin flip; there is no reliable way to determine which will prevail.
“Under the cold scenario, futures are likely to rebound, albeit not as steeply as before this week’s sell-off,” Weissman said. “With the heart of winter nearly over though, if the warm scenario prevails, bullish traders are likely to capitulate, dragging down the whole forward curve and sending the February and March contracts into contango.”
Looking at the technicals, analysts with Rafferty Commodities Group noted that the market closed below major support levels they had drawn at $3.080 and $3.050, with support at $3.000 holding. Heading into Wednesday’s session, the firm pegged minor resistance at $3.070/3.150, with major resistance levels at $3.260/3.370.
“A close below $3.000 should send the market down to our major support levels at the $2.900 and $2.864 area,” the Rafferty team said.
March crude oil futures were trading 22 cents higher at $53.23/bbl shortly before 9 a.m. ET, while February RBOB gasoline was down fractionally to $1.3987/gal.