After trading significantly higher in Sunday night trading on bullish weather forecasts, February natural gas futures gapped higher on the open Monday at $6.33. The prompt month did not stop there. Just before noon (EST), February ran up to notch a trade at $6.55, before receding during the afternoon.
February natural gas futures ended up settling at $6.159, up 15.8 cents. Petroleum futures also had a hectic day Monday. February heating oil reached a high of $1.35/gallon, but returned down to settle nearly unchanged on the day at $1.2763/gallon. February crude shared a similar meteoric rise to a high of $47.30/bbl before settling down at $45.33/bbl, down a dime on the day.
Cold weather forecasts from both the National Weather Service (NWS) and independent forecasters teamed up to let the bulls out of their stalls for the day.
Accuweather Senior Meteorologist Joe Bastardi said Friday afternoon that he was looking for a “superfront” of cold air to descend from Canada into the Midwest and the East Coast this week (see Daily GPI, Jan. 10). “We have a weak El Nino and plenty of frigid air located just to the north of us in Canada,” he said. “That is an invitation for trouble later on in the winter.
“We will see some very warm temperatures [this] week followed by the coldest air of the season,” Bastardi added. “The temperature change may be on the order of 50-60 degrees within a 24-hour period, with highs in Chicago and the Ohio River Valley in the 50s on Thursday, followed by lows in the single digits Friday night and Saturday.”
Commercial Brokerage Corp.’s Ed Kennedy said that Monday’s rally was definitely weather-centered. “We’ve got cold air coming down,” he said, noting that it could be brutally cold with even a chance of record cold. “So let’s see what happens. The key will be whether or not this cold front will be lasting, because near-normal temperatures for the season just won’t cut it. I see us heading higher here in the short term and then we will see where the resistance comes in.”
Noting that the prompt month already reached the $6.54 level, Kennedy said he sees possible resistance at $6.55 or maybe even a little closer to $6.70. “There’s a little bit more to this rally, but it is going to run into a brick wall here at some point because we are still in a bear market,” he said. Kennedy’s $6.55 mark ended up being hit just before noon.
Singing a different tune than it was last week, the NWS’ latest six-to-10-day forecast was significantly more bullish than the agency’s Friday outlook.
The new forecast on Monday for Jan. 15-19 showed colder than normal temperatures gripping a majority of the country. Seasonal cold normals are forecast for the East and for Nevada, Utah and most of California and Arizona, while Southern California, Arizona and a sliver along the coast in the Northeast are expected to experience above normal temperatures.
The NWS’ eight-to-14 day outlook is even more bullish, with a eastward-pointing parabola from East Texas to Wisconsin delineating colder than normal temperatures in the East from warmer than normal temperatures in the West.
With the weather picture finally showing some real cold in the East, some market watchers believe the stage is set to see if weather-driven price strength may separate some of the funds and managed accounts from their massive short positions and drive prices higher. “Higher prices could begin to dislodge some fund capital from the short side of the market. The funds are now over 47,000 contracts net-short and that is a new, 52-week high,” noted Jim Ritterbusch of Ritterbusch and Associates.
A New York floor trader added, “The funds may cover some of their shorts in February and roll into the March. It’s difficult to say what they will do for we are in a sort of no-man’s land.”
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