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Natural Gas Rallies as Coming Cold May Linger into March, Threaten Supplies

Natural gas futures were set to open sharply higher Monday after weather models trended notably colder, with weather systems forecast to arrive in the United States beginning this weekend and that could last into March.

The Nymex March gas futures contract jumped more than 11 cents to around $2.695 just before 8:30 a.m. ET. The so-called widow-maker spread also reverted back into positive territory as April rose less than 9 cents to $2.692.

Monday’s price strength comes on the heels of Friday’s modest gains because of weather models trending colder, with futures continuing to rise after the close when the European weather model added back all the heating degree days (HDD) it had lost the previous couple of runs.

As for the latest data, both the Global Forecast System (American) and European models were notably colder for the period beginning Saturday through Feb. 23, where statistically the GFS added 10 HDDs total compared to Friday’s data while the European model add a heftier 18 HDDs, according to NatGasWeather. Before then, however, a mostly mild setup is expected for this week.

“While the coming cold shots into the northern and eastern United States Feb. 16-23 aren’t as extreme as recent ones, they don’t have to be with five-year average [storage] draws dropping to 104 Bcf three weeks out and much easier to exceed,” NatGasWeather said.

Meanwhile, early indications are that the frigid conditions could have staying power with an active upstream Madden-Julian Oscillation propagation and climate guidance finally catching on to cold lingering into Weeks 3-4, according to Bespoke Weather Services. Any flexing of the southeastern ridge can temporarily eat into gas-weighted degree days (GWDD), which is possible, “but the bias into the end of February is clearly colder.”

The firm’s sentiment remains slightly bullish, as the natural gas market has priced in a decent chunk of the weekend GWDD additions already with March gas sitting up 10 cents. “But given additional cold risks down the road and expectations of gradual market tightening moving forward with imports still near lows and exports back elevated, we still see risk skewed higher through the week,” Bespoke chief meteorologist Jacob Meisel said.

Meanwhile, production is not yet back at highs, and although recent balances have been loose, the firm is seeing risks again that storage could dip below 1.2 Tcf should cold linger into March.

“This can keep a solid bid at the front of the curve and has us at least see $2.75 resistance finally in play again this week. $2.80 is certainly doable if we continue to add GWDDs as well, even with another bearish Energy Information Administration print likely Thursday,” Meisel said.

Crude oil futures were trading more than 25 cents lower at around $52.45/bbl, and RBOB gasoline futures were trading about three-tenths of a cent lower at around $1.44/gal.

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