Mikkel Rosenvold
11 weeks ago

Mild february weather leads to this surprising development in natural gas prices

How does benign weather affect natural gas prices? And how could you trade it?
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Last week, the energy sector threw investors a curveball reminiscent of the early pandemic days. Henry Hub's prices plunged to levels not seen since the Covid-19 outbreak in spring 2020, stirring the market pot. "Amidst a benign weather pattern in the US following January's cold snap, Henry Hub hits lows mirroring the 2020 Covid crisis," explains energy market analyst Ulrik Simmelholt in a recent article.

Investors, spotting a potential turn, are itching to bet against the tide. "As contrarians, the current lows are too tempting to resist, echoing the sentiment that it 'almost can’t get any worse' - a risky mantra for the bold-hearted," says Simmelholt.

However, the natural gas market is on edge, deterred by high volatility. "With the 3-month implied volatility soaring past pre-energy-crisis averages, speculative bets on natural gas are far from being 'cheap lottery tickets,'" underscores the cautious stance among traders.

Shifting gears to crude oil, the narrative brightens. Simmelholt expands: "Crude oil prices tease January highs, with market sentiment gradually tilting bullish," illustrates the market's changing winds. The discussion on the 14-day RSI and a bullish outlook based on price momentum and positioning "signals a growing confidence among traders to increase their long positions," offering a glimmer of optimism in an otherwise uncertain market landscape.

This blend of caution and anticipation in the energy sector underscores the volatile dance between weather patterns, market speculation, and strategic positioning, capturing the attention of investors and speculators alike.

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