The natural gas market over the past 2 weeks has been in a price rally that is typical in the middle of winter, not at the beginning.
An unexpected turnaround to below-normal temperatures across much of the U.S. has been the catalyst behind recent strength. Forecasts could obviously change which could quickly move prices back lower but the trend for the upcoming 3-4 months is expected to be sideways to higher.
The market also last week broke out above weekly chart resistance at the 4.250-4.300 level which technically turns the longer term trend up.
Record high storage injections during 2014 totaling 2,734 Bcf has increased storage which was at an 11-year low of 822 Bcf last March to 3,571 Bcf by the end of October. The storage deficit relative to the 5-year average was 54.7% in March but has since declined to just 7%.
Ample storage and record high production of natural gas remain bearish headwinds for the market longer term. But near term, weather trumps all.
Funds have remained surprisingly absent during this rally with last week's Commitment of Trader's report showing a drop in fund activity. The fund long position last week declined by 8,333 contracts to 141,371 contracts. The funds appear caught off-guard during recent market strength as were the short-position holders which have been absolutely wiped out over the past 2 weeks.
For this week's trade, there may be the first storage withdrawal of the year given recent heating demand for natural gas.
The market is technically overbought but Friday's strong reversal into the close after the market was down over .120 in early trade shows the interest in buying the dips on market weakness.
Expect continued volatility and extreme price swings this winter as the market swings between weather forecasts and actual storage withdrawals. This current winter is shaping up possibly to be another repeat of last winter's extreme price moves.
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