Natural gas and related exchange traded funds rebounded Tuesday after a steep sell-off Monday that may have been too bearish.

On Tuesday, the United States Natural Gas Fund (NYSEArca: UNG) increased 4.6%, while the Nymex natural gas futures advanced 7.3% to $2.47 per million British thermal units.

UNG YTD Performance

Natural gas prices plunged Monday after European weather models removed over 25 heating degree days from the long-range outlook while the American model backed off the projected demand in the early part of January, FXEmpire reports.

“What makes the coming pattern strongly bearish is the eight-to-15 day period favors mild conditions over most of the U.S. with continued only minor bouts of subfreezing temperatures into the northern U.S.,” according to NatGasWeather.

NatGasWeather projected the period was now “too bearish” and will likely add demand, “although it would need to be a hefty amount” in order to return to a bullish sentiment, which isn’t expected. “We continue to look to January 10-13 as the next best opportunity for more impressive/widespread cold,” the forecaster added.

NatGasWeather saw the move on Monday as “too bearish.”

Bespoke Weather Services stated that until the warmer weather fades, it is difficult to price a bottom. The forecaster still projects a large block in the middle third of January, aided by a strong warming in the polar stratosphere.

Bespoke, though, warned that there is not much risk-to-reward in being bearish in the short term, but it advised caution until the market crosses the January contract’s expiration Tuesday, along with the holiday period. The markets should then see how the balances are cleared of any holiday impact.

Looking out toward the end of January, Bespoke outlined a possible Pacific flow that needs to slow down to send temperatures materially lower.

“That is something that may happen in the back half of the month, enough to at least bring back some variability, but confidence is lower after seeing such a huge model bust over the last several days,” Bespoke added.

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