Natural gas bulls find a way to make it 4-0 despite volatility

(C) Reuters.

By Barani Krishnan

Investing.com — Bulls 4 – Bears 0

That’s the scorecard from four days of tug-of-war between the bulls and bears in natural gas, with the outcome increasingly favoring the longs after a 2- 1/2 month long selloff.

Tuesday’s win for the bulls did not come easily though. The front-month gas futures contract on the New York Mercantile Exchange’s Henry Hub was down 16 cents or 6% at one point, suggesting that the market’s upward momentum might have started to fade after just three days.

But with ‘natty being natty’ — a common phrase referring to the absurd volatility on this market — the bulls seized back control in the final hours of trade to finish the day just higher.

“Short covering in the futures market has been ramping up since last Friday, providing the gas market with ample buying pressure,” Houston-based energy markets advisory Gelber & Associates said in its daily note on gas futures.

Henry Hub’s most-active April gas contract settled at $2.747 per mmBtu, or metric million British thermal units — up 1.6 cents, or 0.6% on the day.

Since Wednesday’s tumble to a September 2020 low of $1.967 that marked the nadir of a 2- 1/2 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 45 cents — or 20% — in settlement gains over four sessions.

From a fundamental perspective, the rebound has been supported by a dip in dry gas production to 97.5 billion cubic feet per day versus early February highs of well over 100 bcf daily, Gelber said in its note.

It also said an anticipated rise in U.S. heating demand over the next two weeks due to colder-than-normal weather conditions in early March has been a supportive factor.

Another upside for gas bulls has been the 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.

But intraday price swings, like Tuesday’s, will continue occurring due to the distinctly weaker demand for heating during much of the 2022/23 winter, analysts said.

“Many market players are still recovering from the black eye left by freezing early winter forecasts which never materialized,” the Gelber note said. “As storage inventories remain well in excess of the 5-year average, US natural gas in storage will be the large counter-balancing factor providing significant downward pressure on price.”

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.

The next storage update will be on Thursday.