By Barani Krishnan
Investing.com – It ain’t over till it’s over, Yogi Berra famously said. For natural gas, there are increasing signs the worst may be over longs in the game as futures of the heating fuel jumped a third straight day in a row on Monday, gaining nearly 20% in that stretch for their best winning streak since mid-December.
The most-active April gas contract on the New York Mercantile Exchange’s Henry Hub settled Monday’s trade at $2.731 per mmBtu, or metric million British thermal units — up 18.3 cents, or 7.2% on the day.
Since Wednesday’s tumble to a September 2020 low of $1.967 that marked the nadir of a 2-½ month long selloff triggered by unusually warm winter weather, natural gas has steadily gone the other way.
Together with Monday’s close, the front-month contract for futures of the heating fuel has tacked on 43.3 cents — or 19% — in settlement gains over just three sessions.
The recovery is part-technical and part-fundamental, say analysts. Bulls had been screaming week after week since the year began that charts showed gas oversold beyond justification. On the weather end, while temperatures had been warmer than usual, leading to a stunning storage pile-up in gas, sporadic days between the warm ones also did not warrant a selloff to $1 territory, some say.
“The event that most traders are looking toward as justification for this price rally is current weather models shifting colder in the 10-15 day outlook shown in the GFS model,” Houston-based energy markets service Gelber & Associates said, referring to the leading U.S. weather model.
“Temperatures in the middle of March are expected to be far below the 10 year normal. This shift has added 4 billion cubic feet to the expected forecast demand from yesterday’s forecast and well over that from this past Friday. HDDs have been well below the 3-year range, but as of late, weather forecasts shifting cooler have brought HDDs much more in line with the 3-year normal.”
Storage of natural gas stood at a total 2.195 trillion cubic feet, or tcf, as of the week ended Feb. 17 — up 22% from the year-ago level of 1.8 tcf. HDDs, used to estimate demand to heat homes and businesses, measure the number of degrees a day’s average temperature is below 65 Fahrenheit (18 Celsius).
Also in gas bulls’ corner was improving feed demand for liquefied natural gas with a steady pickup in volumes going into the Freeport LNG terminal in Texas, which has been slowly getting back to normal operations after a fire in June. Freeport had been a rock-solid base of 2 bcf of gas demand a day until it was knocked out.
On the flip side, there are still some bearish elements for the market to reckon with, including an inventory glut that most likely would have to be carried over to the summer, to be used as fuel for cooling instead.
“Domestic gas production has continued to maintain levels of 100-102 Bcf/D leading to an oversupplied market which appears to be looking for any reason it can to move,” Gelber said in its note.