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Friday, July 1, 2022

Natural Gas Futures ‘Nosedive’ in Early Trading as Winter Price Risks Fade

Milder weather trends and the diminishing threat of extreme winter price spikes had natural gas futures in freefall early Tuesday. After plummeting 62.3 cents to open the week, the January Nymex contract was off an additional 28.8 cents to trade at $4.566/MMBtu as of around 8:50 a.m. ET.

The continued selling for the January contract comes as mild weather to this point in the heating season has lowered the risks of a winter supply crunch, according to EBW Analytics Group senior energy analyst Eli Rubin.

“Nymex valuations had previously priced in the risk of significantly colder weather sending winter contracts sharply higher,” Rubin said. “As December warmth continues to build and the storage trajectory continues to rise, however, the dwindling of high-leverage winter price spike risks is causing natural gas prices to nosedive.”

In terms of overnight changes to guidance, NatGasWeather highlighted continued warmer trends from both the American and European models for the first half of December, with milder adjustments spread across the 15-day projection period.

“The overnight data remained exceptionally bearish the rest of this work week and again Dec. 9-15 as most of the U.S. experiences temperatures 10-30 degrees warmer than normal,” NatGasWeather said. “…What also makes the overnight data bearish is that the end of the 15-day forecast was again quite warm with the upper pattern, suggesting bearish weather headwinds in the 10-15 day period will carry over to forecast days 16-20.”

Alongside weather, the recent selling also reflects the impact of “post-contract rollover rebalancing,” according to EBW’s Rubin.

“After the early-week plunge in prices, a relief rally is possible at any time,” the analyst cautioned. “The likelihood of further declines later this week, however, remains elevated as daily demand plunges and the spot market weakens.”

From a technical standpoint, January prices in early trading were probing a key band of resistance from $4.648 down to $4.543 identified by ICAP Technical Analysis.

“Need this band broken to take aim at lower levels,” ICAP analyst Brian LaRose told clients following Monday’s sell-off. “Peg $4.444, 4.133 and $3.967-3.984-3.969-3.949 as the steps to the downside if the bears succeed. Beware a sharp snap back to the upside if they do not.”

January Nymex crude oil futures were down $3.00 to $66.95/bbl at around 8:50 a.m. ET.


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