Natural gas prices continue their upward trajectory, with the February contract reaching $3.35. In contrast, the January contract is trading at $3.60, suggesting a potential test of recent local highs from late November. This price increase is attributed to a further substantial decline in U.S. natural gas inventories, which exceeds the average decline observed over the past five years. However, forecasts for the current week indicate a possible lowering of the inventory decline compared to the previous week, suggesting a smaller decrease than usual.
Change in natural gas stocks in the United States. Source: Bloomberg Finance LP, XTB
It is important to note that weather forecasts for the coming weeks predict a marked warming trend. Although a slight drop in temperatures is expected between December 22 and 25, the overall forecast is pointing towards higher temperatures.
Temperatures, particularly in the Midwest region, are expected to be unusually high. Source: NOAA
High temperatures are expected to persist until the turn of 2024 and 2025. Source: NOAA
The price of natural gas remains high and, without rollover effects, would test its highest levels since January 2023. However, after two significant declines in inventories, a period of reduced gas consumption is now anticipated, which should lead to a seasonal drop in prices. However, any change in weather conditions could lead to a sharp reaction in gas prices. In the event of a cold spell, a range of $3.5 to $4.0/MMBTU becomes plausible. In contrast, a seasonal decline should see prices fall well below $3.0, targeting levels between the 100- and 200-period moving averages, currently between $2.5 and $2.7/MMBTU.
Source: xStation5
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