Natural Gas Futures Sharply Higher on Strong Cash Prices

Natural gas for March delivery on the NYMEX continued its rally Friday, jumping $0.215 higher to $6.043 per MMBtu, with most months driven to new highs by cold forecasts through this week and a tight physical market that kept the cash prices at a steep premium to the soaring futures market. The April contract gained $0.202 to $5.78 per MMBtu. The market opened up and quickly moved higher, dipped back at midmorning on some mild profit-taking, before continuing steadily higher for the rest of the day, hitting $6.065, a new contract high and 24-month spot chart high, late in the session. Also helping to drive the market higher were crude oil futures that also continue to soar higher, gaining $0.96 to $35.12 per barrel. Cold Northeast and Midwest forecasts through most of this week should support prices near-term, particularly with cash still $0.25 higher than futures. The strength in the cash may be the result of storage operators, now worried about rapidly declining inventories, turning to the spot market to meet incremental heating demand. While buying could be tempered by a milder outlook for next week, concerns about dwindling stocks and expectations for another supportive EIA storage report next Thursday still favors the bulls. Last week, the EIA reported total inventories of 1.521 Tcf, 811 Bcf, or 35%, below a year ago, and 287 Bcf below the 5-year average. Look for about 150 Bcf to 160 Bcf to be reported this week, compared to a 172 Bcf decline for the same week in 2002. Some experts expect storage to test record lows around 700 Bcf by the end of March. Over the last 9 years, the average low point for storage at the end of the heating season was 1.09 Tcf. With March resistance at Thursday’s new high of $5.91 and psychological resistance at $6.00 Friday, technical traders now peg resistance at $6.09, a spot chart point from February, 2001. Further selling would be expected at $6.32, and then at $6.70, both spot chart points from February, 2001. Technical support likely first at last week’s low of $5.48, and then at the prior week’s low and double bottom at $5.28. More buying should emerge at $5.00. The National Weather Service forecast through February 16th calls for below normal temperatures for the Northeast and parts of the Midwest and Southwest, with seasonal or above seasonal readings expected for the rest of the nation. Natural gas for next day delivery across the US and Canada was generally $0.15 to $0.25 higher Friday. Natural gas for weekend delivery at the Henry hub gained $0.22 to $6.30 per MMBtu.

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