NATGAS continues rebound as inventories decreased

Natural gas prices maintain their upward trajectory, with the February contract reaching $3.35. On the other hand, the January contract is trading at $3.6, suggesting a potential test of recent local highs from late November. This price surge is attributed to another substantial decline in US Natgas inventories, exceeding the average decrease observed over the past five years. However, forecasts for the current week indicate a potentially halved inventory drawdown compared to the previous week, implying a smaller-than-usual decline.

Change in US gas inventories. Source: Bloomberg Finance LP, XTB

It is crucial to note that weather forecasts for the coming weeks predict a marked warming trend. While a slight cooling is anticipated between December 22-25, overall forecasts have shifted towards higher temperatures.

Temperatures, particularly in the Midwest region, are expected to be exceptionally high. Source: NOAA

Elevated temperatures are projected to persist into the turn of 2024 and 2025. Source: NOAA

NATGAS is holding firm at elevated levels, and excluding rolling effects, would be testing its highest levels since January 2023. Nevertheless, following two significant inventory declines, a period of reduced gas consumption is now anticipated, which should trigger a seasonal price decline. However, any shift in weather patterns could prompt a sharp reaction in gas prices. In the event of a cold snap, a range of $3.5-4.0/MMBTU becomes plausible. Conversely, a seasonal downturn should see prices decline considerably below $3.0, targeting levels between the 100 and 200-period moving averages, currently situated between $2.5 and $2.7/MMBTU.

Source: xStation5