Natural gas prices and related exchange traded funds jumped Tuesday on a notable shift in the weather as more frigid conditions helped fuel the outlook for heating demand.

The United States Natural Gas Fund (NYSEArca: UNG) rose 5.4% Tuesday while the Nymex natural gas futures were 7.1% higher to $1.97 per million British thermal units.

NatGasWeather stated that Weather data trended colder over the weekend and the colder trends were extended in Monday’s model runs, Natural Gas Intelligence reports.

“Essentially, further bullish weather trends continue,” according to NatGasWeather. “No changes to the timing of major weather features to impact the U.S. the next 15 days, just with the pattern Feb. 27-March 3 looking better/more bullish. This means a nice cold shot will sweep across the northern U.S. Wednesday through Friday, followed by a milder break Feb. 22-26 before cold returns across most U.S. regions Feb. 27-March 3.”

The sudden cold spike could help alleviate some of the pressure in a battered natural gas market that has suffered through an uncharacteristically mild winter.

“This is a much better pattern compared to the past few months as numerous cold shots finally cash in on a tighter supply/demand balance to reduce surpluses versus the five-year average,” NatGasWeather added. “As long as colder than normal conditions are maintained in the weather maps into early March, weather sentiment will be viewed as bullish, the first time in months. But this winter’s track record has been to give back tons of demand as colder days on the back end of the 15-day forecast roll forward, so this needs close watching.”

Furthermore, INTL FCStone Financial Inc. Senior Vice President Tom Saal argued that traders should be watching for a potential turn around in the extreme amount of net short positions among speculators, which could set up the potential for a short covering or short squeeze on any shifts in the fundamental outlook.

“Going back five or six years worth of data, you’re seeing this is the greatest net short they’ve been during that period of time,” Saal told NGI. “They have pressured prices lower significantly. Any kind of fundamental reaction to the bullish side would probably trigger some short covering by speculators.”

For more information on the natgas market, visit our natural gas category.

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