Natural gas up 5%, but 'too early to call bottom' say analysts

By Barani Krishnan

Investing.com -- Natural gas futures advanced for a second straight day on Tuesday, gaining just over 5% on bets for colder temperature in the coming weeks, although analysts warned against assuming that prices of the heating fuel which struck more than two-year lows last week have bottomed.

“Today prices are inching cautiously higher as the longer-range weather forecast models are indicating that there may be another period of extensive below-average temperatures to overspread the US in late February and/or early March,” said analysts at Gelber&Associates, a Houston-based energy markets trading consultancy.

The front-month March gas contract on the New York Mercantile Exchange’s Henry Hub settled up 12.7 cents, or 5.2%, at $2.5840 per mmBtu, or metric million British thermal units. It rose 4.7 cents, or 1.8%, on Monday to virtually all that it lost on Friday when it hit a bottom of $2.343, its lowest since Dec. 29, 2020.

Despite the last two days of rebound, Gelber’s analysts warned that “it’s a bit too soon to suggest that NYMEX gas futures prices have bottomed.”

“Several catalysts could take prices lower still," the analysts said. "For example, if the major weather forecast models show signs of backpedaling on the mid-to-late February pattern shift or shorten its duration as they have pretty much all winter long, or if production rises back above 100 bcf/d, or if volumes to Freeport are interrupted; NYMEX gas futures could test new lows or possibly sink to the $2.00/MMBtu area.”

Gas futures have lost about 60% from December’s highs of above $7. Prior to that, the heating fuel traded at a 14-year peak of $10 in August.

An unusually warm start to the 2022/23 winter has led to considerably less heating demand in the United States versus the norm, leaving more gas in storage than initially thought.

According to the latest U.S. gas storage reading provided by the EIA, or Energy Information Administration, inventories of the heating fuel stood at 2.583 tcf, or trillion cubic feet for the week ended Jan. 27. That is up 9.4% from the year-ago level of 2.361 tcf, said the EIA. The agency will provide its next storage update on Feb. 9.

Production has, meanwhile, averaged near record highs of around 100 billion cubic feet per day in recent months, significantly weakening the fundamental outlook for gas.