Further colder trends in the overnight weather data helped natural gas futures extend their recent run higher in early trading Tuesday. The May Nymex contract was trading 8.0 cents higher at $1.811/MMBtu at around 8:40 a.m. ET.

The Global Forecast System again trended colder overnight to add another 4-5 heating degree days to the outlook, while the forecast from the European model remained mostly unchanged, according to NatGasWeather.

Both models “show a decent cool shot late this week across the northern U.S., a mild break late this weekend, then more impressive cold shots into the U.S. next week through the following weekend,” the forecaster said. “Essentially, bullish weather trends held” for Thursday (April 9) through April 19.

“...With natural gas prices again higher overnight, and now up more than 25 cents in just a couple trading sessions, prices may have rallied too far too fast. But then again, short covering rallies have been swift whenever they have occurred the past six months, giving limited opportunities for bears to exit on pullbacks.”

Also supporting natural gas prices is the prospect of longer-term cuts to associated gas supply as the collapse in oil prices has prompted a swift reduction in drilling activity. IHS Markit analysts estimated that the low oil prices could “radically” alter the trajectory of gas supply in North America, leading to an 8-10 Bcf/d drop in associated gas volumes by the end of 2021.

“These are unprecedented times in oil markets, and they will affect U.S. gas markets once the Covid-19 impact subsides,” IHS Markit’s Reed Olmstead, director of North American upstream research, said. “As demand returns, dry gas producers are going to have to step up and fill the supply gap left by reductions in associated gas volumes, and the commodity markets are going to have to make it profitable to drill new wells.”

Nearer term, markets have been bracing for Covid-19 demand destruction as measures to slow the spread of the virus shut down normal business operations. Energy Aspects estimated a 2.1 Bcf/d decline in baseload industrial demand for 2Q2020 resulting from the virus.

The firm cited preliminary flow data that aligns with “industry-wide reports of shutdowns and lower usage rates,” suggesting “we are seeing the start of sustained industrial declines. The impact to gas demand is only likely to grow in April as more industries are forced to close plants due to the spread of the virus, either as workers test positive or amid low demand for products due to the macroeconomic uncertainty.”

May crude oil futures were up 42 cents to $26.50/bbl at around 8:40 a.m. ET, while May RBOB gasoline was up about 1.9 cents to around 72.1 cents/gal.