In January US natural gas recorded its worst start to the year since the early 2000's. The price has fallen by over 70% since August 2022 high, and only since the beginning of this year has it been down by over 30%. Currently, the price is trading well below USD 3/MMBTU and questions arise as to whether this is the end of hopes for a rebound during the ongoing heating season.
The price remains below the 5-year average. On the other hand, the standard deviation from the annual moving average may suggest oversold conditions. However, this is not confirmed by the 5-year deviation. Source: Bloomberg, XTB
This week's sell-off was caused by the fresh weather forecasts and heating degree days estimates- which were slightly reduced. It's supposed to be cold for the next few days, however temperatures are expected to increase in most states. Interestingly, the world is gearing up for an El Niño phenomenon which could raise temperatures in key heating regions around the world.
The number of heating degree days is slightly down, but remains below the 5-year average. Source: Bloomberg
US temperatures outlook. Source: Bloomberg
Gas took a beating in recent months. In the past, sell-off usually ended when corrections reached around 70%. On the other hand, it is the sharpest correction that has taken place in the last 20 years, so it cannot be ruled out that the price needs time to stabilize. Short-term fundamentals point to further declines. Positioning is not extremely low, but details provide grain of hope - there is a significant increase in open interest, which means that we are likely to face increased volatility in the coming weeks. Source: xStation5
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