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‘Frosty’ Early February Pattern Sparks Natural Gas Futures Rally
Natural gas futures rallied sharply in early trading Monday as weather models over the weekend advertised a significantly colder Lower 48 temperature outlook heading into early February.
The February Nymex contract was up 35.5 cents to $3.529/MMBtu at around 8:40 a.m. ET. March was up 12.0 cents to $3.156.
Weather data over the weekend showed milder trends for later this week but trended “sharply colder” for the period starting Sunday and continuing through Feb. 5, according to NatGasWeather.
“A frosty system will sweep across the Midwest Friday to Saturday. It’s this Midwest system that opens the door for a series of frigid shots over Canada to advance aggressively into the northern and central U.S. Jan. 29-Feb. 5,” bringing low temperatures ranging from the 20s down into the negatives, NatGasWeather said.
The outlook for this period “is now easily frosty enough to be considered bullish,” but “it would be more impressive if the South and Southeast were colder instead of remaining relatively comfortable,” the firm added.
Updated models showed the subfreezing air retreating to “cover just the northern tier Feb. 6-8 for moderating national demand,” though the European model showed cold retreating more quickly than its American counterpart, according to NatGasWeather.
Market response to the notably colder forecast reflects “increasing freeze-off risks” given the frigid conditions expected to impact production areas in the Bakken Shale, the Rockies and parts of the Midcontinent, according to EBW Analytics Group analyst Eli Rubin.
“It is possible that early-February freeze-off risks, potential short covering and market memory of last year’s $1.988 spike into February expiration could support a modest near-term price recovery,” Rubin said.
On the other hand, recent history suggests Nymex futures could struggle to sustain any upward momentum, according to the analyst.
The more modest rally in the March contract compared to February gains early Monday indicated that “bullish risks” are “seemingly contained,” Rubin said. This points to “enduring seasonal challenges for Nymex gas.”
The upcoming cold “may not curb oversupplied conditions,” Rubin added. “As March becomes the front month and cold fades, renewed downward pressure is expected.”
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