Natural gas futures are soaring on Tuesday after a surprise change in the weather forecasts late Monday caught short-sellers off-guard, forcing them to aggressively cover their positions. Although the surge in prices is being blamed on the weather, some traders believe the size of the reaction may be unjustified and are looking for another source of the rally.
At 13:46 GMT, May natural gas is trading $2.883, up $0.027 or +0.95%.
Short-Term Weather Outlook
According to NatGasWeather for March 19 to March 25, “Overall, a messy pattern this week with mix of weather systems with showers and cooling impacting most US regions, but with mild breaks between. The southern US will be mild to warm with highs of 60s to lower 80s, while mild to cool across the northern 2/3 of the country with highs of 30s to 50s. Most impressive warming will take place this weekend with highs of 60s and 70s spreading out of the southern US northward for lighter national demand. However, a weather system Tuesday-Wednesday will impact the East with showers and cooling. Overall, national demand will swing between moderate and high the next 7-days.”
Some traders are blaming the technical chart pattern for the rally in combination with the weather. They claim that the lack of follow-through to the downside on Monday following last week’s weakness was just enough to spook weak short-sellers out of the market.
I have to also place the blame on aggressive buyers who seem to be content with holding prices in a range as we approach the beginning of the injection season.
I don’t expect this strength to last, and with previous spikes to the upside in natural gas, this move is likely to end badly once the major short-sellers decide to stop the rally.