The natural gas market was sold heavily for a second day on Tuesday as the spot February 16 contract lost nearly 6% on the day.
The rapid sell off over the past two sessions which has erased 9% from the spot natural gas contract follows a three week rally during which the market gained over 40%. This week's price break shows how tied the market is to upcoming weather forecasts which have switched back to milder "El Nino"-like conditions toward the end of the month.
With only 175 Bcf of gas withdrawn from storage over the first 8 weeks of winter, 65% below the 5-year average, current storage remains very high at 3,643 Bcf. Without increased winter heating demand, the natural gas market will likely face record high storage at the end of March surpassing the 2,472 Bcf high reached in 2012.
U.S. storage is historically high and weather expectations for natural gas demand are currently low, not a particularly bullish combination for higher prices.
But as seen last week, longer range forecasts two weeks out and beyond can quickly change. And if the forecasts do turn colder, the market could easily make another upward leg higher.
However, without sustained heating demand over the final 12 weeks of the current withdrawal season, the 14-year low set in mid-December will likely be retested as support over upcoming weeks of trade.
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