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Natural gas massacred amid warmer forecasts

Natural gas plunged sharply as weather forecasts undermined the recent bullish case.

On Monday, US natural gas futures plummeted by around 15%, the worst one-day decline in over eight months, due to expectations of significantly less cold weather and heating demand over the next two weeks.

According to data source Refinitiv, meteorologists increased their two-week average temperature projections for the United States to 45 degrees Fahrenheit (7 degrees Celsius) on Monday from about 43 degrees Fahrenheit on Friday. Around this time of the year, the average temperature is approximately 46 degrees Fahrenheit.

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EBW Analytics Group stated that the reversal had “slashed the fundamental underpinning supporting recent price advances” due to the “collapse of the March weather pattern.” Nonetheless, Monday’s sharp decline is partially a market reaction to last week’s overbought conditions.

“Nymex gas futures likely surpassed fair value late last week and may consolidate lower in coming weeks,” EBW senior energy analyst Eli Rubin said.

Chinese LNG imports plunge

China’s natural gas imports via pipeline and LNG were down 9.4% year-over-year in January and February. This has been reported by the country’s customs bureau on March 7th.

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In the first two months of 2023, the country imported 17,93 million metric tons of natural gas, compared to 19,79 million metric tons in the same period of the previous year. Due to the recent decline in world gas prices, the cost of imports fell 9.2% annually to 11.9 billion yuan ($1.72bn).

Mergers and acquisitions

On Monday, Chesapeake Energy Corporation, a natural gas producer, said it would provide Gunvor Group Ltd with up to 2 million tonnes of liquefied natural gas (LNG) yearly for 15 years.

The demand for liquefied natural gas from US exporters has skyrocketed in the wake of Western sanctions against Russia, the world’s largest gas producer, which have intensified an already reduced global supply of gas. Under the terms of the agreement, Chesapeake and Gunvor will jointly choose an American liquefaction plant. The deliveries are anticipated to commence in 2027.

As long as the price holds below the recent highs of $2.60, the near-term picture is negative, with prior lows of $2.35 serving as a possible target. However, if the price rises over $2.65 once again, it might reach the psychological level of $3.

gas futures

Natural gas futures 4H chart, source: tradingview.com, author’s analysis

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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