Natural gas futures gapped higher early Tuesday but prices retreated during the regular session. Buyers came in on the dip in defense of last Friday’s low, driving prices higher into the close. The market finished at its highest close since December 1.
On Tuesday, February Natural Gas futures settled at $3.056, up $0.103 or +3.49%.
The buying continues to be driven by record low temperatures in several key demand areas.
The U.S. National Weather Service has warned of “dangerously cold wind chills” in certain parts of the East Coast and Midwest this week as a front continues to ice cities from Maine to Texas, bringing record-low temperatures and a surge in heating fuel demand.
“Bitter cold wind chills continue across the Northern Plains, Great Lakes, Northeast, New England and Mid-Atlantic,” the NWS said in an update on its website. “Freezing temperatures reach all the way to southern Texas and central Florida. The cold air will begin to moderate early this week. Heavy Lake Effect snow continues downwind of the Great Lakes.”
According to NatGasWeather.com from January 3 to January 8, “Arctic air will cover the northern, central, and eastern U.S. with lows of minus 25 degrees Fahrenheit to teens. Subfreezing air has also advanced deep into the southern U.S. with lows of single digits to 30s. The West will be mild apart from cold valley inversions. With very cold conditions continuing over the North, East, and South. Natural gas demand will remain very high.
Natural gas prices spiked higher on Tuesday and even closed over a key retracement area but there has been no continuation of the short-covering rally. This may be a sign that a short-term top is forming especially since the NWS said in its statement, “The cold air will begin to moderate early this week.”
The chart indicates that a sustained move over $3.030 will indicate the presence of buyers. The market will get stronger over $3.097 with $3.210 the next likely target.
The inability to overcome $3.030 will signal the return of sellers. This could lead to a labored rally with targets layered at $2.941, $2.886, $2.830 and $2.766.
If buyers are going to step back in, they are likely to do it on a test of the retracement zone at $2.830 to $2.766.