As February natural gas futures get set to roll off the board at the close of business Friday, Jan. 27, participants are turning attention to March futures setting up to take the lead. In early Wednesday, Jan. 25, trade, both contracts were struggling between modest gains and losses as traders jockey for positions ahead of the transition.
Although weather looks to continue to weigh the market to the downside, some fundamentals still suggest bullish momentum.
"Natural gas fundamentals continue to support the bull's case as US natural gas production remains around 70 Bcf/d, and it is slowly trending up," HFI analysts said. Further, the analysts noted Canadian gas imports remain around 5 Bcf/d, with Canada's gas storage sitting at around 75.1%, LNG flows are still hovering around 2 Bcf/d and Mexico gas exports remain above 4.1 Bcf/d.
"Fundamentally speaking, the tight natural gas market is expected to continue," the analysts said.
February natural gas futures early Jan. 25 were attempting to add to the gains posted Tuesday, Jan. 24, finding a $3.314/MMBtu high after hitting a $3.255/MMBtu low, while March futures climbed to $3.339/MMBtu, while hitting a $3.276/MMBtu low.
Prices have remained relatively steady for most of this month as the market has been sandwiched between the 20-day and 100-day moving averages on the continuation chart.
The 100-day average is currently around $3.14/MMBtu and is backed by positive price action around the 62% retracement of the Nov. 9, 2016, through Dec. 28, 2016, uptrend at $3.17/MMBtu in March futures.
A sharp sell-off Jan. 9 violated the retracement support on a closing basis, but the breakdown was followed by an equally sharp rally the next day. While the hold would normally argue for a return to the Dec. 28, 2016, high at $3.828/MMBtu, a potential for weakness is still in play.
The upside looks limited as the contracts attempt to rally but continue to find exhaustion just above, FX Empire analyst Christopher Lewis said.
"Because of this, it's likely that if we drop from here and reach below the $3.25 level, the market should continue to go lower."
March futures have held below the 20-day moving average fairly well throughout this month.
Lewis warned, however, that if we can break above the top of the range and above $3.50/MMBtu, we could fill the gap at $3.649/MMBtu. "That would be a very explosive short-term move," the analyst said.
Ultimately, Lewis believes the sellers will continue to take advantage of a very bearish overall long-term picture.
The hesitant bull market is backed by the latest "Commitments of Traders" report published by the CFTC, which showed that short covering helped boost the managed money net long. Short covering tends to have mixed effects on prices.
Managed money accounts added 21,799 to their net long position to reach 162,054 contracts in the week ended Jan. 17, with the change made through the liquidation of 18,279 short positions while longs added 3,520 contracts.
Support in natural gas is seen near an upward-sloping trend line near $3.20/MMBtu, FX Empire analyst David Becker said.
"Warmer than normal weather is forecast to cover most of the United States over the next 8-14 days which should reduce heating demand and therefore reduce the demand for natural gas," he said.
Meanwhile, momentum is neutral as the moving average convergence/divergence index, or MACD index, prints in the red with a flat trajectory, which reflects consolidation. The relative strength index, or RSI, is printing a reading of 48, which is in the middle of the neutral range and also reflects consolidation.
Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.