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Uncertainty over the extent winter chills into the month of February put downward pressure on natural gas futures in early trading Tuesday. The February Nymex contract was off 5.6 cents to $3.971/MMBtu at around 8:50 a.m. ET. March was off 3.8 cents to $3.837.
The European weather model shed heating demand from the outlook overnight for the first few days of February, reversing colder trends from Monday afternoon, according to NatGasWeather.
The European and American models also continued to diverge on the extent of cold arriving Feb. 4-7, suggesting the pattern during this period “might not be quite cold enough to satisfy” traders without better model agreement, the firm added.
“There’s still strong national demand through the coming weekend,” including frigid temperatures across the northern and eastern United States, NatGasWeather noted. “However, more recent weather data is now too warm Feb. 1-3 due to a stronger break over the southern and eastern U.S.”
The latest data early Tuesday suggested cold could potentially spread from the Rockies and Plains into the rest of the northern Lower 48 Feb. 4-7, according to the firm.
Natural gas markets will have to “decide if they can overlook milder national demand Feb. 1-3 as long as a cold pattern returns Feb. 4-7,” NatGasWeather said.
However, the lack of agreement from the European model raised doubts ahead of Tuesday’s session over whether cold will come through, putting emphasis on subsequent model runs to provide more clarity, according to the firm.
Meanwhile, frigid weather arriving this week is set to add “spice” to the physical market as heating demand will rise by an estimated 38.3 gas-weighted heating degree days tomorrow, according to EBW Analytics Group senior analyst Eli Rubin.
The physical market price action in response to the imminent cold could complement “the coming February contract rollover as price volatility increases over the next three days,” Rubin said. “By next week, however, weather-driven gas demand could sink by 11.2 Bcf/d at the same time recovering production freeze-offs add 1-2 Bcf/d supply — likely guiding the March contract lower in its first week as the front-month.”
Meanwhile, from a technical standpoint, the 9.3-cent rally for the March contract Monday failed to offer up a decisive sign of bottoming action, according to ICAP Technical Analysis analyst Brian LaRose.
“An ‘up’ day, but not nearly enough of a rally to convince us that we have a classic ‘cup with handle’ bottom,” LaRose said of the recent price action. “Bulls will have to do more, and fast. In the event the bulls are unable to engineer lift off they risk allowing the bears to have a go at more critical support.”
LaRose pegged key support targets at $3.617, $3.536, $3.416 and $3.355, pointing these as the levels “bears have to break to unleash a drop to $3 or below.”
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