BWS Blog
December Warmth Crushes Gas All Week
Friday, December 14, 2018 at 5:04PM
The January natural gas contract got crushed this week, settling down almost 15% for the week as the market finally reacted to significantly warmer weather trends.
It took awhile for the market to begin reacting to this warmth in December, but this is not particularly a surprise as all the way back in September and October we were warning clients that December had some of the most pronounced warm risks of the winter. Even when November surprised cold we remained consistent in our calls for December warmth.
Then last week we warned subscribers that over last weekend and into this week we would struggle to see long-range cold risks on weather model guidance move forward, as the warm pattern had some durability and models were likely too quick in showing cold return.
We reiterated that in our Weekly Update on Monday where we held a Slightly Bearish natural gas sentiment through the week and both saw current weather forecasts as bearish and forecast additional bearish weather trends through the week to hit prices.
All week we warned of short-term downside for natural gas prices from this warmth, something that played out best today with a significant collapse lower at the front of strip as the January contract plummeted 30 cents.
Many lingering natural gas bulls finally threw in the towel as long-range forecasts trended back warmer again today, which Climate Prediction Center Week 2 forecasts showed well today too.
This comes as Gas Weighted Degree Days are expected to remain below seasonal averages through at least the next two weeks, and potentially longer.
Tropical forcing appears at least partially to blame, as all week we were warning clients to favor European modeling guidance that showed more warm risks and other models have now trended towards. It has handled this recent tropical forcing event well, and shows tropical forcing lingering over the Maritime Continent through Week 2, sustaining bearish US weather risks.
Additionally, we have seen natural gas balances loosen recently with warm weather moving on out of the region. Prices have stayed a bit more firm with LNG exports staying at record highs, though the amount of demand that provides is only very incremental compared to the amount of weather-driven demand eliminated from forecasts this week.
Traders are now looking to January to see when cold may be able to return to the forecast. We published our updated Seasonal Report back on Tuesday outlining when we expected cold to return and how we would expect prices to act before then, but some models such as the American CFSv2 show rather mixed risks with a cooler East and warmer Midwest.
There is little doubt that weather expectations will continue to drive natural gas prices through next week, and after warning subscribers through the week that $4.25 and $4 (or lower) were likely to get hit, we will be working to keep them ahead of the next weather-driven price move. To see our Pre-Close Update, where we outlined weekend weather model expectations and our natural gas price expectations for early next week, and to receive all our detailed weather and natural gas-driven analysis through next week, try out a 10-day free trial here.
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Looser EIA Print And Warmer Models Reverse Natural Gas Rally
Thursday, December 13, 2018 at 4:44PM
January natural gas price started out the day shooting higher, as overnight models increased long-range cold risks. Our Morning Update highlighted that $4.25 was likely to be tested on overnight long-range GWDD additions.
That test came quickly this morning, but the EIA announced that only 77 bcf of natural gas was drawn from storage last week versus our estimate of 82 bcf, hitting prices lower.
Immediately in our EIA Rapid Release we warned that, given recent balance and weather trends, we saw this EIA report as slightly bearish for natural gas prices moving forward.
Sure enough, natural gas prices quickly reversed lower through the day, with the January contract actually settling down slightly on the day.
The March contract ended up being the only one to log a slight gain.
The result was another move lower in the January/March contract spread, though the move was not nearly as large as some of the other ones we have been more accustomed to seeing.
Prices were further depressed by afternoon model guidance that did not show nearly as many long-range cold risks. Climate Prediction Center forecasts did show fewer warm risks in Week 2, but still do not show any cold risks even as models last week showed cold could be returning by Christmas-time.
It was clear that this combination of bearish weather models and a slightly looser EIA print hurt natural gas prices, as we saw this print come in slightly looser than last week's on a weather-adjusted basis.
Traders now will be preparing for another weekend of weather changes, managing risk before this two-day trading halt where we can again expect decent weather model noise and changes. In all our reports tomorrow we'll be outlining exactly how we expect weather models to trend over the weekend and where we would expect natural gas prices to trend next; try out a 10-day free trial here to give it all a look.
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Natural Gas Finally Collapses Lower
Wednesday, December 12, 2018 at 4:51PM
The January natural gas contract got hit hard today, shooting over 6% lower as balances loosened on warmer weather and long-range forecasts showed only limited colder risks.
The January contract again logged the largest loss on the day, a testament to the role weather had in pushing prices lower.
This has already fit very well with our weekly natural gas sentiment sent to subscribers on Monday which was "Slightly Bearish."
As expected, weather model guidance was rushing long-range cold risks, with further warm trends in overnight weather model guidance seen in our Morning Update.
We also saw power burns and other demand loosen today, as yesterday in our Note of the Day for clients we warned that loosening was likely through the week.
When combined with consistent warm risks through Week 2, this was all the natural gas market needed to sell off significantly.
Meanwhile, traders will be paying close attention to tomorrow's EIA print to see how much gas we drew last week, when cold came on late in the week.
Our early estimate is that this print will be similar in balance to the one saw last week, as we expect a solidly larger draw thanks to decently more GWDDs on the week.
Yet despite storage levels being so low and this draw being rather large, the March/April H/J spread fell off today on those warmer weather trends we had been calling for.
It will certainly be another busy day with gas prices breaking down below the forming pennant, and we expect volatility to again be elevated with another EIA print. In our Afternoon Update we outlined how we saw risk skewed and prices likely to trend from here. Try out a 10-day free trial here to give that report a look and put all our highly detailed weather and natural gas analysis to use in this volatile environment.
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Lingering Warmth Takes A Bite Out Of Gas
Tuesday, December 11, 2018 at 5:26PM
Selling was widespread at the front of the natural gas strip, as continued warmer forecasts for December sent the January futures contract 3% lower.
It was the January contract that led the whole winter strip lower today, with Spring and Summer 2019 again catching a bit of a bid.
We first picked up on these bearish weather trends with a Morning Update forecast that showed another round of GWDD losses overnight.
This came as European model guidance remained warm, something we highlighted in our Afternoon Update yesterday was likely to continue. This morning we then outlined for clients that Week 3 forecasts were appearing decently less bullish than they were yesterday while 12z model guidance was still unlikely to increase bullish risks, which played out well.
Climate Prediction Center predictions showed this well by maintaining most warm risks through Week 2, even as some models show early indications of a pattern transition colder.
In our intraday Note of the Day for subscribers today we also outlined what role yesterday's reported DTI/TCO withdrawal may be having on natural gas price risk and what it implied about Thursday's EIA print.
Meanwhile, we also released our Seasonal Trader Report, where we looked at the latest weather-driven demand expectations through April and outlined various opportunities we saw along the natural gas futures curve. Here we saw the role that very elevated GWDDs through 2018 has had on price.
Then in our subscriber-only live chat we broke down which weather model we preferred between European and American weather model guidance, outlining how we expected weather models to trend through the remainder of the week. Of note was a continued tropical forcing signal on the Madden/Julian Oscillation.
It's clear that these weather-driven moves aren't about to stop anytime soon, and we continue to work to keep subscribers ahead of each one, letting them know how risk is skewed and exactly what appears to be moving prices on a daily basis. Try out a 10-day free trial here to see how you can put all our analysis to use.
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Natural Gas Volatility Isn't Going Anywhere
Monday, December 10, 2018 at 4:55PM
It was another very volatile day in the natural gas space, as prices gapped up decently last evening, sold off through the morning, spiked on cold risks in American model guidance mid-day and then sold off hard into the settle. After all this the January contract settled up 1.3% on the day.
The January contract was the only one to log a gain on the day; the rest of the strip logged a small loss.
The result was a decent tick back up in the F/H January/March spread following major declines last week.
These changes came as traders struggled to determine how best to react to weekend weather trends. In our Morning Update we highlighted that 15-day Gas Weighted Degree Day forecasts were quite similar to what we forecast on Friday.
In fact, we noted that 6-10 and 8-14 Day forecasts were almost exactly what we had predicted on Friday.
Yet though the weather analysis was right and prices did initially sell off this morning on "Slightly Bearish" weather trends, that did not last long.
Cold risks remained on long-range GEFS American weather model guidance, which helped spike gas prices mid-day (images courtesy of Tropical Tidbits).
Medium-range warm risks continued to intensify too, though, which tempered gains and was reflected again on afternoon Climate Prediction Center forecasts.
The mixed strip action and shifting forecasts shows that traders are struggling to determine exactly which way to push natural gas prices in this narrowing wedge. In our Natural Gas Weekly Update we looked at all fundamental and technical factors at play in the natural gas market this week, while our Note of the Day looked at the latest Week 3 forecasts and weather-adjusted balances and our Afternoon Update concluded how we saw weather-driven risk skewed overnight. To give all this in-depth weather and natural gas research a look, try out a 10-day free trial here.
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A Little Cold Risk And Nat Gas Soars
Friday, December 07, 2018 at 5:10PM
It was a bullish end of the week for natural gas prices, as the very end of European weather model guidance showed marginally more favorable upstream conditions for cold and that was all it took for prices to shoot almost 4% higher on the day.
It was another day where the March contract led the charge higher as well, something we again highlighted in our Morning Update seemed to skew short-term risk higher.
These came even as weather model guidance lost GWDDs over the next two weeks, indicating the market is more focused on what comes down the road instead of the warmth that has already been identified.
In our Weekly Update published Monday, we highlighted that warmth would likely intensify through the week and put at least $4.25 in play. That was hit again last night, and likely would have broken and put the $4 lower level in play if not for the long-range -EPO that arrived on European ensemble guidance.
Climate Prediction Center guidance showed how confidence in this Week 2 warmth increased yet again today, something we had highlighted in that Weekly Update would be a trend through the week.
This came after our Friday Pre-Close Update last week warned of "Slightly Bearish" weather trends and that gas prices were likely over-valued above the $4.5 level, allowing clients to position for this recent move lower. Yet consistently we also cautioned prices can spike on the first sign of cold; it remains early, and GWDDs are likely to remain below average through December 21st, but in our Morning Update we highlighted that Week 3 changes had turned bullish and 12z model guidance risks were less bearish, which verified well with gas prices up just .2% at the time.
An in-line EIA storage announcement today also did little to stunt the rally, as we were looking for a solidly smaller withdrawal than the 63 bcf withdrawal that was announced today.
This ended up being a bit tighter than the previous EIA print as it included less Thanksgiving holiday demand destruction.
No doubt part of today's rally was positioning in case end of December cold weather risks increase over the weekend. In our Pre-Close Update today, we highlighted those risks and how we expected them to change over the weekend. We looked into the latest balances and identified how medium-range warmth would also likely adjust on weather models this week, explaining how we saw risk skewed in natural gas prices and what our current confidence is. To take a look at all this analysis, try out a 10-day free trial here.
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Warmer Mid-December Trends Send Gas Back Lower
Thursday, December 06, 2018 at 4:56PM
It's been quite the back-and-forth in the natural gas market this week, with colder short-term trends and tightening balances helping prices bounce early but warmer trends later in the month keeping prices in check. With some warmer overnight trends the January natural gas contract settled down over 3% on the day for its lowest settle of the week.
Losses were largest at the front of the strip, a sign that weather was a key driver today.
Our subscribers were prepared, as in our Afternoon Update yesterday we shifted our natural gas sentiment to "Slightly Bearish" citing long-range warm risks and technical signals that were flashing more bearish risks.
This was reiterated in our Morning Update where we highlighted that $4.25 was "back in play" off long-range warmth, with European model guidance losing a solid number of GWDDs overnight. Prices got within 2 cents of that level, eventually bouncing on some colder afternoon guidance.
The Climate Prediction Center picked up on some of these warm risks in their long-range forecasts this afternoon.
Colder trends in the Southeast on afternoon American GEFS guidance helped give prices a bid later in the day though (images courtesy of Tropical Tidbits).
Now, traders are gearing up for tomorrow's EIA print while also trying to guess how weather model guidance will shift over the weekend. In our Note of the Day for clients today we took a deeper look at climate guidance, including American CFSv2 and Japanese modeling. We noted the continued warm bias on the CFSv2 model, but we also saw it finally trend colder for January in its most recent run, a trend that should continue on its output tomorrow too.
To view all our detailed research on how much the US can warm in the medium and long-range, how weather-driven natural gas demand is likely to trend on weather model guidance into early next week, and when real cold risks like we saw in November can return, try out a 10-day free trial here.
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Gas Nearly Flat In Lower Volume Trading
Wednesday, December 05, 2018 at 4:34PM
While American equity and interest rate markets were closed today, NYMEX natural gas futures had a normal day with seemingly normal levels of volatility, though volume was off a bit on the day. After an overnight bounce prices settled up just over a cent on the day, seeing another decent trading range of over 22 cents.
The March contract again led the day today.
Even so, in our Morning Update for clients we highlighted that the F/H January/March spread was just barely off highs.
We also outlined a "Neutral" sentiment today but highlighted that on the day the January contract appeared "overvalued" over the $4.5 level despite small overnight GWDD adds that were supporting prices.
Sure enough, prices pulled back to flat on the day, thanks in part to a warmer run of the afternoon GEFS in the long-range relative to the overnight run (images courtesy of Tropical Tidbits).
Meanwhile, we can see the volume drop-off today that resulted from other American financial markets being closed today, with just over 97,000 prompt month gas contracts being traded in today's session.
It will be mostly back to normal tomorrow, though the weekly EIA natural gas storage change number has been moved back a day to Friday at 10:30 AM Eastern. Traders are generally looking for a storage change similar to what we saw last week with GWDDs near constant week-over-week.
In our research today we outlined a number of key weather trends for clients, primarily how intense warmth in Weeks 2 and 3 will be and when it looks to end and reverse back colder. We outlined potential impacts on natural gas prices, as well as how tight balances are running in this current cold shot and how that will impact next week's EIA print as well. To give all this research a look, try out a 10-day free trial here.
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Another Round Of Storage Concerns Get Gas Going
Tuesday, December 04, 2018 at 4:59PM
After significant selling yesterday the entire natural gas futures curve got a bid today, with significant gains at the front of the strip. By the end of the day the January natural gas contract settled up just less than 3%, solidly in the middle of its recent range.
It was clear early in the day that storage concerns were front and center as the March contract got going first, dragging the rest of the strip higher.
We highlighted this in our Morning Update, where we outlined that "...a bit more March contract strength indicates that storage concerns are back elevated...thus we cannot rule out bounces towards $4.5 short-term..." even though overnight models did not significantly increase cold risks in the next two weeks.
Afternoon Climate Prediction Center forecasts highlighted this too, as warm risks seemed to tick down slightly but day-over-day forecast changes were minimal.
Yet a key climate model trended far colder early in January last evening which seemed to first get prices moving higher, and they never looked back. In our Seasonal Trader Report for subscribers today we outlined our winter weather expectations through March, explaining when cold could return after mid-December warmth and demonstrating our forward natural gas storage expectations. Of note was strength seen along the 2019 natural gas curve as of yesterday's settle which continued today.
We also held our subscriber-only live chat on Enelyst, where we fielded subscriber questions and looked at the most recent balance, weather, and natural gas price dynamics. Of note today was a dip in production but bounce in Canadian imports, though overall supply was down day-over-day.
We also looked at the latest Madden/Julian Oscillation forecasts from American GEFS weather model guidance, explaining what this showed about the timing of any mid-December warmth and any eventual return colder.
Certainly weather will be a central focus moving forward, as traders are looking for hints of when cold could return in the long-range as well as how intense any warmer weather in the longer-range is likely to be. In our Afternoon Update we ran through the latest weather model guidance and price expectations, putting today's March-led rally in context as well. To read this Update, and get access to all our other detailed weather and natural gas-driven content, try out a 10-day free trial here.
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Mid-December Warmth Crushes Gas
Monday, December 03, 2018 at 4:42PM
It was a bloodbath at the front of the natural gas curve today, as after a decent gap down last evening the January contract accelerated lower through the day. A bounce into the settle helped prices close decently off the lows, but the January contract still settled 6% below Friday's close.
All the losses came at the front of the natural gas strip, as the from April 2019 and beyond prices actually caught a bit today. The role of weather was clear with the January contract logging the biggest loss as well.
Over the weekend we saw long-range warm risks roll forward into the medium-range, as we noted in our Morning Update that Week 2 warmth would likely cancel out Week 1 cold. This fit very well with our expectations, as the overall 15-day forecast did not change much from our Friday outlook for clients either.
In our Pre-Close Update we warned clients that we expected bearish weather trends over the weekend as long-range warmth would roll forward.
In that same Pre-Close Update we warned of prices likely moving back below $4.5 this week, something that quickly occurred last evening.
The focus today was all about that long-range warmth, with Climate Prediction Center forecasts increasing coverage of expected above average temperatures in Week 2.
Meanwhile, we did see cash prices remain a bit more firm today with cold expected across the country this week.
All eyes will be on the cash market tomorrow too with significant cold expected Wednesday, and that is something we broke down in our Afternoon Update for clients. We also released our Natural Gas Weekly Update today, our flagship report diving into all aspects of the current weather forecast and natural gas market. To give all our research a look and see how we can help you manage risk in the natural gas market, try out a 10-day free trial here.
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Natural Gas Keeps Chopping Around
Friday, November 30, 2018 at 4:57PM
It was another choppy day in the natural gas space, as after yesterday's EIA dip got bought up we again saw a couple intraday dips get bought up today, with the January contract just settling down just three quarters of a percent.
For yet another day we saw the March contract lead the way lower as well.
Prices initially worked lower through the morning session on some warmer GFS weather model trends, as well as slight warmer trends in overnight models. We highlighted this in our Morning Update.
Additionally, we noted in our intraday Note of the Day for clients today that production appeared to hit a new record high today with LNG exports sitting near record highs as well.
Still, the impact of new record production has clearly faded from the summer, when it was easily able to hit prices. Now storage levels are low enough to be the key focus in the market, making weather all the more important. The Climate Prediction Center picked up this afternoon on some of the warmer trends we highlighted overnight that were able to hit prices a bit.
Yet dips were still bought, and some slightly colder trends on afternoon weather model guidance seemed to play a role. We highlighted these in our Pre-Close Update, where we run through our natural gas sentiment headed into the weekend and highlight where we expect forecasts to trend by next week. The Climate Prediction Center made their 3-4 Week forecast clear today, calling for widespread warmth later in December, though they have recently been a bit too far on the warm side.
Meanwhile, we have been actively monitoring Sea Surface Temperatures across the globe. In our live chat with subscribers Tuesday we highlighted some key features in this, and today in our Pre-Close Update described how El Nino Conditions upstream and various pools of warmer ocean temperatures could influence model trends moving forward.
To give this research a look, and begin receiving all our highly detailed weather and natural gas analysis, including the latest Week 3 forecasts, weather-adjusted supply and demand statistics, and contract spread analogs, try out a 10-day free trial here.
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Natural Gas Shakes Off A Looser EIA Print
Thursday, November 29, 2018 at 5:02PM
Though the January natural gas contract settled down slightly on its first day as the prompt contract, it settled higher than it was initially ahead of the morning's EIA storage number, closing solidly off the lows.
It was the March contract that lagged the most on the day still, with the January contract settling down just over 5 cents from yesterday's expiry spike.
Prices fell initially overnight on warmer GEFS American model guidance, then shot higher on a colder European model run. We outlined these differences in our Morning Update for subscribers.
Yet prices still meandered down ahead of the morning EIA print as traders positioned for a potential bearish miss and reacted to what may have been an overdone short squeeze yesterday (which is why we held a Slightly Bearish sentiment in our Afternoon Update yesterday). This worked well as the EIA announced 59 bcf of gas was pulled from storage versus our estimate of 67 bcf and market expectations just north of 70 bcf.
This was a much looser print when compared to the previous week's very large draw.
Certainly the Thanksgiving holiday played a role, but even so it still was a far looser print. Yet very cold medium-range forecasts helped prices rebound through the session still.
Now traders are attempting to figure out how long-range forecasts will adjust over the weekend, as the Climate Prediction Center is showing more warm risks there.
Any warm risks were a key focus in our Afternoon Update for subscribers today, where we broke down today's EIA print in more detail and explained how we see various catalysts from weather to daily weather-adjusted balances as likely to impact natural gas prices into early next week. To give this a look, and begin receiving all our detailed weather and natural gas-driven analysis, try out a 10-day free trial here.
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December Contract Expiry Sends Gas Soaring
Wednesday, November 28, 2018 at 5:00PM
It was another wild day in the natural gas space, with the December contract shooting higher into its expiry as gas for the upcoming month was clearly in high demand.
The December contract logged the largest gain on the day, clearly dragging the rest of the strip higher.
The end result was the December/January Z/F spread ending in positive territory, which is far from common.
Colder medium-range trends on afternoon weather model guidance likely helped add fuel to the fire in the expiration rally, as seen by colder 6-10 Day CPC forecasts.
Our Morning Update also highlighted that "...we could see the December contract jolt higher as cash has been strong relative to futures recently..." which verified this morning and also likely played a role in this strong expiry, with the stage set by overnight HDD additions.
Traders are now awaiting an EIA report tomorrow that should show a solidly smaller storage pull last week than was seen in the previous week thanks to less weather-driven demand, though it is unclear just how much smaller the draw will be.
With implied volatility still so high and such a large move today, more significant moves can be expected tomorrow, especially around another important EIA print. In our Afternoon Update we broke down what the latest weather models were showing for overnight pricing risks as well as where forecasts likely trend into tomorrow, what we see for tomorrow's EIA print, and where we see gas price risks skewed into next week. Try out a 10-day free trial here to give the report a look.
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Another Couple Nat Gas Bounces Fail
Tuesday, November 27, 2018 at 5:06PM
It was a slow natural gas trading day by recent standards, yet the December contract still saw a range of 20 cents with large, quick moves in both directions as weather models bounced around and December futures options expired at the settle.
Heavy selling into the settle cut into the December gain on the day, with the contract settling up slightly as later winter contracts were hit harder.
In our Morning Update we outlined that there were some modest GWDD additions in Week 2 and that combined with "lingering cash strength or into options expiry $4.25-$4.3 resistance could get tested again..." In fact, resistance was tested first off AM cash strength and then again into options expiry, with a brief poke above before prices crashed back below into and after the settle.
Some colder afternoon American weather model guidance in Week 2 helped prices recover a second time today, which the CPC picked up on.
Yet clearly storage concerns overall eased with such relatively large March contract weakness.
This was something we broke down for clients in our subscriber-only live chat today, where we fielded questions on our December weather forecast as well as natural gas pricing risk and the latest weather-adjusted demand balances. Of note were power burns really picking up again relative to past years on the cold shot peaking today.
We also released our Seasonal Trader Report, which outlined out weather expectations through the next 5 months. In it we looked at the latest Sea Surface Temperature profile globally to look at where temperature risk was skewed and broke down the probabilistic El Nino forecasts by the Climate Prediction Center.
Weather remains the main driver of natural gas price action, and in our numerous daily reports we look at the latest Week 1, Week 2, Week 3-4, and long-range pattern expectations to break down exactly how we see weather as likely to impact prices moving forward. When combined with our storage modeling, weather-adjusted balances, and contract spread analysis we're able to provide a holistic view of the gas market, letting you know both why prices are moving and how risk appears skewed moving forward. Try out a 10-day free trial here to see how you can put this all to work.
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Warmer Weekend Forecasts Hit Natural Gas
Monday, November 26, 2018 at 4:30PM
It was another volatile day for the December natural gas contract, as it gapped down significantly last evening and recovered through much of today's trading session but still settled down almost a percent and a half below Friday's settle.
The February and March contracts were hit the hardest.
This came following significant weekend GWDD losses, which we highlighted for clients in our Morning Update.
Such weekend trends were not particularly surprising, as we had been tracking warm risks last week as well. Last Monday we highlighted in our Note of the Day that we were seeing weather model trends that may allow prices to set a top; they spiked on Wednesday off a bullish EIA print but that turned out to be the top (after initially seeming to set a top Monday).
Then on Friday we warned that risk was skewed lower in prices despite low confidence in this high volatility environment, and that long-range warm risks should arrive on models by today.
Those medium-range cold risks did intensify as expected, and current Week 2 forecasts have quite a few cold risks per the Climate Prediction Center.
Models then show some easing cold risks late Week 2 into Week 3, as seen by less intense cold on the 12z GEFS this afternoon (model images courtesy of Tropical Tidbits).
Prices did recover from their early morning lows today, thanks in part to lingering Week 2 cold risks and firm cash prices that we outlined in our Morning Update, which is why we said "...we would first look for bounces to $4.1 or even $4.25..." when prices were trading around $4.05. Yet into the settle the December and January contract both logged similar losses (though after hours the January contract has been hit a bit harder).
Natural gas volatility is certainly expected to continue, and today for subscribers we released our intraday Note of the Day on Week 3 weather forecasts and weather-adjusted gas demand balances as well as our flagship Natural Gas Weekly Update outlining our price expectations for the week and our Afternoon Update detailing the afternoon weather model guidance and overnight price expectations. To give all this research a look and see how we can help you navigate this volatile market try out a 10-day free trial here.
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This Overnight Gas Spike Fails
Wednesday, November 21, 2018 at 4:40PM
The December natural gas contract shot far higher overnight, moving above $4.85 briefly before gradually moving down through the morning. A bullish EIA print then spiked prices back into resistance, only for that second bounce to also fail with prices settling down a bit over 1.5% on the day.
Losses were by far the worst at the front of the strip.
The overnight spike was not surprising to subscribers, as in our Afternoon Update yesterday we warned that even even after significant buying into the settle we saw further upside into $4.7-$4.75 resistance (which ended up getting briefly breached).
Our Morning Update then highlighted that $4.7-$4.75 resistance, "stands a good chance of being firm" today after prices moved back below it, which verified well as it was tested off a very bullish EIA announcement that 134 bcf of gas was pulled from storage last week.
This was far tighter than what we have been used to seeing.
Yet after a major spike even this was sold into a bit despite afternoon GEFS weather model guidance that was a bit mixed (images courtesy of Tropical Tidbits).
All week we had highlighted "bullish risks" with this EIA print, which we reiterated this morning, so it was not all that much of a surprise when it missed quite bullish to our -109 bcf estimate. Still, the magnitude was impressive, and underscores a large storage deficit that is unlikely to be fixed anytime soon. This storage deficit and fears that we may run low on gas by the end of winter explains why the March/April H/J spread has blown out so much recently.
Traders now head into the holiday knowing that volatility in thin liquidity is likely to continue. We are looking for further large moves with implied volatility so high, and in our Afternoon Update outlined what kind of moves we expect into the abbreviated trading session Friday as well as what weather forecasts and prices are likely to look like next week. This came after our Note of the Day looked at the latest weather-adjusted demand figures and our EIA Rapid Release broke down today's EIA print in more detail. To give this research a closer look, and begin receiving all our detailed weather and natural gas analysis, try out a 10-day free trial here.
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Natural Gas Sell-Off Fails
Tuesday, November 20, 2018 at 5:03PM
Today's December natural gas contract trading range eclipsed that of yesterday as prices continued to whipsaw around. Prices initially were strong before selling off through the day and spiking right into the settle to close only a few percent below yesterday's settle.
The January contract led the way lower today, with strong physical prices helping the December contract minimize gains relative to later contracts. The April contract also got into much of the selling after it got in on the buying action yesterday.
Today was rather surprising for us, as in our Morning Update when prices were just below $4.5 we highlighted that, "if anything we still see risk a bit higher, though prices likely stay from $4.4-$4.7" thanks to "...significant long range cold risks..."
Initially our prediction worked very well, as the December natural gas contract shot up to $4.67 this morning, though prices began selling off on some cash weakness after. However, this selling intensified through the afternoon, with $4.4 being surprisingly broken later in the day even as afternoon GEFS guidance did not seem much warmer (image courtesy of Tropical Tidbits).
In our Note of the Day for subscribers we outlined that the strip was showing some bearish signals, and crude prices were hit very hard today, so it did not appear weather was the reason for the move lower. Sure enough, then, prices spiked very significantly into the settle to move right back into the middle of the $4.4-$4.7 range we had expected for the day, verifying our market view. This came as European model guidance confirmed long-range cold, with more cold in the medium-range too per the Climate Prediction Center.
Today for subscribers we also released our Seasonal Trader Report, where we look at our 5-month GWDD forecast and specifically looked at when long-range cold risks in December could break down. We also had our weekly subscriber live chat, where we looked at the latest weather pattern dynamics, risks to natural gas prices, and fielded questions from subscribers. We covered quite a bit, but one focus was the longevity of the upcoming -NAO regime.
Traders were also preparing for tomorrow's early EIA print, where a very large storage build is expected to be announced. In advance of it Dominion Transmission announced their largest storage draw since the week ending March 22nd.
We'll have another busy day tomorrow with our EIA Rapid Release to clients right after tomorrow's EIA print to put it in historical context. We'll also have our intraday Note of the Day looking at weather-adjusted balances and Morning and Afternoon Updates breaking down the latest weather model changes and pattern expectations. To give all this research a look and see how we can help you manage risk in this wild natural gas environment, try out a 10-day free trial here.
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Natural Gas Keeps Shooting Higher On Cold Risks
Monday, November 19, 2018 at 4:49PM
It was another great day for natural gas bulls, as colder weather trends on weekend model guidance primarily in Week 2 helped the December natural gas contract shoot 10% higher on the day. After a large gap up prices did fall some on warmer overnight model trends before colder afternoon models sent prices right back up to highs.
The entire winter strip was up about the same with the April contract and even the rest of the 2019 strip participating a bit more.
In our Friday Pre-Close Update for subscribers we highlighted that weather models were likely to add GWDDs over the weekend, which skewed weather risk "Slightly Bullish."
We started the report outlining too that "...we see upside risk winning out over downside risk..." which verified well with last evening's gap. Then this morning we noted warmer overnight weather models which would mean "bounces may be sold now" since these models were, "...an indication that prices will likely struggle to take out the $4.7-$4.75 resistance level they trended near last night" even though "bounces are still likely over $4.5 early in the week." All of these played out well, with sellers early then colder afternoon model guidance briefly sending prices over $4.75 before a reversal back below $4.6 post-settle.
It was the colder GFS/GEFS models late this morning and early this afternoon that really got prices moving (images courtesy of Tropical Tidbits).
We also published our Natural Gas Weekly Update, which is our flagship 17-page report on the state of the natural gas market as a whole. In it we broke down expectations for Wednesday's EIA print, as well as how we see weather models likely to trend through the week, what current weather forecasts look like, and what natural gas spreads may be signifying about forward price risk. One point we have continued to emphasize is how bullish weather has been through 2018, a trend likely to continue moving forward.
This will be seen on Wednesday when the EIA should announce a very large storage withdrawal.
This volatility is certainly here to stay, and we're working to keep clients ahead of it. To begin receiving all our numerous daily reports, from our Morning Update covering weather model trends and our price expectations for the day to our Note of the Day looking at Week 3 weather and weather-adjusted gas S/D balances, try out a 10-day free trial here.
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Cold Early December Risks Send Gas Flying Again
Friday, November 16, 2018 at 5:28PM
The volatility appears here to stay in the natural gas complex, as the December contract shot 6% higher and continued upwards post-settle on continued risks that the month of December starts quite cold.
The theme of March leadership continued as well, with the March contract logging the largest gain again today after it led Tuesday and Wednesday as well.
In our intraday Note to clients today we warned to look for this March strength intraday as a signal that prices would remain strong, which verified well with the March contract very strong into the close with prices going out near the highs.
It was a wild week in the natural gas complex overall, though, with prices shooting higher earlier in the week before Wednesday's absolute blowout, followed by a full retrace of Wednesday's explosion yesterday. Overnight we noted yet another increase in bullish weather risks in the long-range, leading us to see "more support" and an "initial cash bump" for prices today off increased long-range cold risks.
We also warned that while overnight models were actually a bit less bullish in the medium-range with some warm risks, Week 3 cold risks were likely to increase on models today and 12z model guidance would increase those cold risks in the long-range, which played out on a colder 12z European model run.
Admittedly it was an extraordinarily volatile week, and after we held Slightly Bullish sentiment in reports Monday and Tuesday we turned Neutral the last few days due to extremely low confidence in the face of enormous volatility. Still, we did well to identify the key trends driving the market and the price bias each day as we saw increasingly cold long-range risks responsible for the spike today (and had warned of more upside risks still Tuesday night). Helping us as well was our custom analysis of the futures strip, and this week we were looking closely at the Z/H December/March spread for subscribers.
Every day in our Morning Update we provide a contextual view of contract spread movements, where we can clearly see how anomalous this recent explosion in price was.
We also include a view of how the average daily trading range compares to the 5-year average; after an extremely slow summer and fall you can see how that has really ticked up.
Now, headed into the weekend, traders are looking to the latest weather models and trends to see where the next 30-50+ cent move could be. Climate Prediction Center forecasts do not look particularly cold in the long-range, but they were also made before colder European model guidance was released (which was then incorporated into our Pre-Close Update).
In this Update we run through our expectation for how weather forecasts will change over the weekend, as well as how natural gas price risk appears skewed, what daily balances and contract spreads indicate about catalysts driving price, and what volatility is likely to look like early the following week. This follows all our other research that provides a highly detailed, integrated view of weather in the natural gas market. To give our research a look, try out a 10-day free trial here.
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