Natural Gas Prices Soar on Strong Demand Outlook

Natural gas futures are finally breaking out to the upside of its month-long support base early Wednesday. As we mentioned previously, the chart pattern was bullish and that speculators were just waiting for weather-related news to drive prices through the resistance.

Helping to generate today’s breakout move is robust liquefied natural gas (LNG) demand, forecasts calling for lingering cold weather throughout the month and  strong domestic demand.

Bullish shifts in temperatures in Europe are probably having the greatest influence on prices. According to NatGasWeather, “Prices spiked violently as the new overnight EC (European) model trended 10 HDDs colder for January 19-26. As a result of the overnight GPS trending warmer and the EC colder, the EC is now notably colder than the GFS for January 20-26, while forecasting the coldest temperatures and strongest demand so far this winter season.”

At 13:25 GMT, March natural gas futures are trading $4.077, up $0.109 or +2.75%.

The month-long choppiness was a reflection of the alternation of weather forecasts calling for on-again, off-again cold blasts. The current breakout to the upside reflects a shift in the forecasts to lingering cold events. Or weather conditions that could actually support a trend.

Not only are current temperatures in key demand areas cold, but the forecasts are calling for the cold to continue into the end of the month. On top of that, it’s getting cold in Europe and Russia hasn’t been able to keep up with heating demand needs, leading to robust demand for U.S. liquefied natural gas (LNG).

Short-Term Weather Outlook

According to NatGasWeather for January 12 to January 18, “National demand will become light Wednesday-Friday as a warm break sets up across most of the U.S. with highs of 40s to 70s besides the colder Great Lakes and Northeast where highs will be in the 10s to 40s.

Another cold shot will sweep across the northern U.S. this weekend with lows of -0s to 20s for strong demand, followed by another milder break over most of the U.S. early next week with highs of 30s to 70s for lighter national demand.

Overall, national demand will be moderate Wednesday-Friday, high Saturday-Sunday, then back to moderate early next week.”

Short-Term Forecast

From a technical perspective, in order to sustain the current breakout rally, March natural gas prices are going to have to hold above $3.964. If this level becomes new support then I can build a case for the rally to continue into the wall of resistance at $4.252, $4.378 and $4.450. The latter is another potential breakout level.