Brrrr…How High Can Natural Gas Rise on Cold U.S. Weather?

With below-normal temperatures forecast for the Northeast and Midwest for Thanksgiving Week, folks will be cranking up the heat more than usual for their annual festivities. With that anticipated rising demand, the January Henry Hub natural gas contract, the largest by volume, is riding a three-day win streak while the front-month December contract tests multi-month resistance levels around $3.8-$3.9 per million Btu.

After decisively breaking below $4 in June, the front-month contract has tested and failed to rise back above $3.9 three times. Looking at the chart below, natural gas:

  • Hit its usual summer peak in mid-July at $3.835 and then sold off
  • Failed to break through its July high in mid-September
  • Touched a multi-month high of $3.869 in mid-October but missed printing $3.9 for the third time.
Natural Gas: Is It Peaking or Will It Break Out?

Natural Gas: Is It Peaking or Will It Break Out? (Click to Enlarge)

Will natural gas finally breakthrough for a run at $4?

From a fundamental standpoint, the bullish arguments are in place. With colder-than-normal weather heading into December, traders may be anticipating an overall cold U.S. winter and are bidding up prices. According to the United States Energy Information Administration, about half of U.S. households use gas for heating.

On the supply side, oilfield services company, Baker Hughes, believes the total U.S. natural gas rig count will decrease 10 percent to 340 total in the fourth quarter this year. Longer term, Baker Hughes counted more than 900 rigs in September 2011 but that number has dwindled with falling prices.

Should natural gas fail to breakout, the January contract may provide a nice short-term sell opportunity especially if the weather starts warming up. Otherwise, the bulls may find themselves with a very happy holiday season.

For more… Liquefied Natural Gas: A Case for Rising Prices

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