Natural gas futures rallied on Wednesday as bullish investors held on to hope that the current cool weather pattern will extend into next week and perhaps the end of the month. According to the latest weather update from Commodity Weather Group LLC, we could see a deeper cold settling in over the highly-populated and higher demand northeastern area from March 20-29.
Prices for the May futures contract could continue to straddle the $3.024 to $3.150 area over the near-term because of forecasts calling for a slight shortage in the supply-demand balance. This is being helped by stagnant production, steady export demand and lingering cooler temperatures.
Looking ahead to Thursday’s EIA storage report, traders expect the weekly government report to show a draw of about 54 billion cubic feet in the week-ended March 10. This compares with a withdrawal of 68 billion cubic feet during the week-ending March 3, a billion a year earlier and a five-year average drop of 95 Bcf.
According to the EIA, total natural gas currently stands at 2.295 trillion cubic feet, 7.7% lower than levels at this time a year ago but 15.8% above the five-year average for this time of year.
Traders may already be looking ahead to next week’s EIA storage report. Due to the storm that hit the Northeast, traders are expecting a record storage draw for the week-ending March 17. The current implied balance is indicating a 140 Billion cubic feet draw. This is highly unusual for this time of year.
The direction of natural gas prices will be determined by how much of this number has already been priced into the market. If the weather market goes away then bullish traders are going to have a hard time holding prices over $3.00. If the cold weather pattern continues into April then we could see a short-covering spike through this psychological level.
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