The natural gas market saw some buying on Friday, as the markets are trying to price in the idea of more flows in the system, as another storm approaches the Carolinas.
Natural Gas
The natural gas market has rallied significantly on Friday due to a large amount of liquefied natural gas flows capturing the attention of traders. That being said, you should also keep in mind that the Carolinas are about to be hit by a pretty significant snowstorm and that will drive up flows even further. We are still dealing with quite a bit of negative headlines when it comes to temperature and snow in the United States. So, with that being said, I think you have a situation where natural gas is probably due for another bounce.
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That being said, I don’t know if we will hit the $7.50 level again. It is worth noting that between spot markets and futures markets, as we are trading the March contract right now, there is an extreme amount of backwardation. This typically means that prices are expected to fall over the next several weeks, but that doesn’t mean that they have to stay down here.
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The $4.50 level I believe is a short-term barrier, but it would not surprise me to see natural gas eventually work its way up to the $5 level. This time of year, I only buy natural gas, I do not short it simply due to the fact that the demand is normally pretty impressive. But after we get this next spike, we start to question whether or not the warmer temperatures coming will eventually drive prices back down. After all, there are two or three great trades every year when it comes to natural gas. One of course is buying natural gas as the first bitter cold hits North America, and then the other one is shorting natural gas as warmer temperatures come. It is a very cyclical trade.
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