Growing expectations for sustained cold temperatures from February helped natural gas to briefly extend a rally from the previous day before falling at Tuesday’s close as short-sellers returned to dominate futures of the heating fuel wrecked by unseasonable warmth this winter.
The front-month March gas contract on NYMEX’s Henry Hub settled at $3.057 per MMBtu, or metric million British thermal units, down 16.5 cents, or 5.1%.
That virtually wiped-out Monday’s 5.5% gain, which initially signaled price deviation in a market that has lost about 30% of its value since 2023 began, amid tepid heating demand in one of the warmest Northern Hemisphere winters in two decades.
Prior to the tumble, Henry Hub’s front-month contract hit a 14-year high of $10 in August 2022. On Monday, it hit an intraday low of $2.993 per MMBtu, marking a low since May 2021, before settling well off that bottom at $3.222.
“The potential for an early February freeze throughout large expanses of the US lit a bit of a fuse under NYMEX front-month natural gas futures on Monday,” Gelber & Associates, a Houston-based energy markets trading consultancy, said in a note.
Prices initially faced a “second wave of bullishness” on Tuesday from forecasts that the U.S.-based Global Forecast System and the European ECMWF weather model will show greater Arctic wind intrusions in much of the United States, including gas production areas in Texas, Louisiana, and the Appalachian region, the Gelber note said.
Unlike the late December 2022 Arctic blast that plunged deep into Texas and Louisiana and featured very little, if any, ice or snow, the looming February winter event is threatening to usher in icy precipitation along with frigid temperatures, the consultancy said.
That could potentially extend freeze-offs in oil and gas wells, depending on how much ice ultimately comes to fruition, Gelber said.
Despite the growing conviction for a February freeze, funds in natural gas still sent the market towards the bottom of $3 by Tuesday’s close.
TRADE SUGGESTION- SELL AT 3.224, TAKE PROFIT AT 3.092, SL AT 3.313