Natural Gas News: Will Colder Weather Push Futures Past Key $3.60 Resistance?

Futures Climb on Colder Weather Forecast and Storage Draw

Natural gas futures rose early Wednesday as forecasts hinted at cooler air sweeping into the Lower 48 states in January, boosting expectations for increased heating demand. This follows a volatile session on Tuesday, where the prompt month surged by 20 cents amid shifting fundamentals.

At 14:57 GMT, Natural Gas futures are trading $3.391, up $0.083 or +2.51%.

Surge Driven by Storage Withdrawals

A significant catalyst for the recent price momentum is a larger-than-expected withdrawal from U.S. natural gas storage. The Energy Information Administration (EIA) reported a 190 Bcf draw last week, marking the largest early-winter decline on record. The storage surplus compared to the five-year average shrank sharply to 165 Bcf from 284 Bcf the previous week. Analysts now anticipate inventories could drop below year-ago levels by month-end, fueling bullish sentiment.

This draw reflects a rise in U.S. heating demand, which has been above seasonal averages since late November. After a mild start to winter, heating consumption has accelerated, tightening near-term supply-demand balances.

Production Constraints Add Support

On the supply side, natural gas production has struggled to adjust swiftly to changing price signals. Output hit a record 113.1 Bcf/d earlier in 2023, with Texas, Pennsylvania, Louisiana, West Virginia, and New Mexico accounting for over 70% of volumes.

However, producers have only recently begun scaling back drilling activity after months of oversupply, causing prices to hit record lows. Delays in ramping output down or up due to rig logistics and labor constraints have kept the market sensitive to sudden demand changes.

Weather Outlook Turns Colder

Meteorological forecasts point to a potential transition from El Niño to La Niña, which could drive colder temperatures across the northern U.S. and Europe. La Niña conditions typically trap Arctic air southward, increasing heating demand and straining natural gas supplies. This could have further implications for Europe, where gas inventories are already depleting amid one of the coldest winters since Russia’s invasion of Ukraine.

Market Forecast: Bullish Short-Term Outlook

Given the recent storage drawdowns, colder weather outlook, and slow production adjustments, natural gas futures appear poised for near-term upside. Traders will closely monitor upcoming storage reports and weather updates, with sustained cold likely to push prices toward recent resistance levels near $3.60.

Technically, traders are monitoring the activity around the 200-day moving average at $3.367. Reaction to this indicator could set the tone into the close, with a bullish move targeting $3.444 to $3.647 and a bearish reaction projecting a return to $3.118 to $3.089.