Wednesday, November 13, 2019 at 1:21PM
After a strong rally that sent prices in the December natural gas price all the way to $2.90 last week, sellers have been in control over the last few sessions. We did see a drop in projected demand in weather forecasts coming out of the weekend, but that has changed in the last 48 hours, with a healthy move back in the colder direction, especially by the GEFS model. Despite the move back colder, we have seen no hint of a bullish reaction in the land of prices, as the December contract has fallen all the way down below the $2.60 level today. This is typically the time of year when weather changes rule when it comes to natural gas volatility, so what gives? There are a couple of issues. As seen in the chart above, even with the colder change over the last 48 hours, projected demand beyond this week still is just "near normal", with no days anywhere close to this week's peak cold. Another issue is with supply. We saw a new record high in production this past weekend, and while there are some freeze-offs currently, leading to a decline in production, the amount of freeze-offs appears to be less than what the market had anticipated given the strength of the cold. In addition, Canadian imports have ramped up this week, making up for a large portion of what production declines we have seen. The end result is that this week's supply is turning out to be higher than expected, and that is, for now, negating the gain in forecast demand seen over the last two days, especially with no days in the forecast strongly to the cold side in the medium range. Now, if we continue to add demand back, or see a colder start to December, it is likely the market will take notice more. Or, on the flip side, if the pattern steps solidly to the warmer side in December, there is likely still room to fall considerably, even from today's price levels. With so much hinging upon the outlook for December, timely data / intel is as important as ever. Our unique blend of weather and fundamentals is designed to keep the active trader ahead of potential market moves. Sign up for a 10-day FREE trial here to take a look at what our latest research suggests as we move forward.
Wednesday, November 06, 2019 at 4:31PM
Current weather forecasts are about as cold as you will ever see them at this time of the year, with lots of "blue" and even some "purple" showing up in our forecast maps from this morning. With that being the case, it is no wonder natural gas prices have been pushed much higher over the last couple of weeks, but for the first day in awhile, we saw hints that the level of cold in current forecasts could be reduced somewhat, hinted at by both today's GEFS and ECMWF ensemble (EPS). Both models show the potential to return to a "near normal" demand pattern in a couple of weeks, and natural gas prices took notice, selling off and closing with a red candle today, something that has been rare recently. At the end of the model runs, there is a tendency toward more of an upper level trough progressing toward the Gulf of Alaska, which typically correlates with milder trends in the U.S. The issue, however, is that we have seen models tease such a change a few times over the last week or two, only to fail, as forecasts progress colder. This definitely will promote some skepticism when it comes to any material shift in the pattern, for good reason. Is this time likely to be just another "head fake", or are they tangible reasons to believe a change is in the works? Sign up for a 10-day FREE trial here to see our latest thoughts, along with all of the products we have to offer to keep the active trader a step ahead of rapidly changing market conditions.
Tuesday, October 29, 2019 at 7:56PM
What a week it has been in the natural gas market, and we have not even reached the middle of the week yet. Today was the last day the November contract will be on the board, and it went out with a bang, up nearly 30 cents from Friday's close. The entire curve has gotten in on the "rally" act, though the front has been where the biggest gains have come. The reason for the monster rally? Weather. Yes, it is that time of year where focus shifts to Mother Nature in terms of what will most drive natural gas volatility. We have seen quite the colder change for the first half of November since back on Friday. Here is what the models showed in terms of forecast Gas-Weighted Degree Days (GWDDs) last night, compared to just 24 hours prior. Notice both the GEFS and the ECMWF Ensemble (EPS) showed much higher forecast demand, and that doesn't even account for colder changes seen over the weekend. A better visual image is the GEFS forecast from 5 days ago, valid next week. That's not a big warm look by any means, but look at how the forecast trended as it rolled forward, seen in this morning's run of the same model, also valid next week. The trend has very obviously been in the colder direction, quite solidly. Now, while weather has been the catalyst the bulls were looking for, the move has likely been exaggerated by the massive short position the market has been holding. With the market so heavily short, a solid bullish catalyst (enter weather) can force at least some of the shorts to cover, enhancing the rally, and that's likely been a big part of what we have seen the last couple of days. Can weather continue to propel the market higher from current levels? It is possible. We saw that last year, albeit with much higher prices than we will see this time, but every year is its own beast, so it will require careful monitoring as we move forward. That is where we come in, providing data and analysis of current trends in order to assist the active trader in decision-making. Sign up for a 10-day FREE trial here to take a look at the products we have to offer to keep you ahead of the market in these volatile times.
Monday, October 21, 2019 at 6:57PM
Last week felt a little more promising for natural gas bulls, as prices rose to around $2.35 at the end of electronic trading back on Friday, flirting with key resistance levels that seemed at risk to be broken thanks to colder weather from the end of this month into the start of November. It was not to be, however, as prices were crushed in today's session. The prompt month November contract settled down more than 8 cents on the day, reversing most of last week's entire rally with a closing price of $2.238. Why such a sharp decline? There are a couple of reasons. One is that the amount of cold forecast by the weather models weakened over the weekend. Notice how cold the GEFS was, for example, when we woke up Friday morning in the 11-15 day time frame: Checking what it showed this morning valid the same dates, the change is quite obvious to the warmer side in the key eastern half of the U.S. Yes, there is still plenty of cold on the map, but it is focused in areas where there are fewer people, resulting in lower demand for natural gas consumption. But weather was not the only driver of today's price action, and arguably not even the most important one, despite being near the time of year when we often look to the weather forecasts as the primary driver of natural gas price volatility. We saw a rather large jump up in natural gas production in the weekend data. The data shows that Friday and Saturday's production total was around 95.1 bcf, blowing away the previous high mark of 94.2 bcf in our dataset. At a time when supply demand balances are already running loose despite low prices, more supply is definitely not something that is friendly to the bulls, what few that still exist, given the market's already extreme short position. The length in the market is at its lowest level in years, but until the aforementioned supply / demand balances can tighten, it is difficult to put together a rally unless strong cold hits and is able to have some durability. This week's EIA report seems unlikely to change the landscape much, as it will take quite a miss vs our expectation in order to avoid again reflecting loose S/D balances. For now, it is up to weather to deliver enough of a punch to turn this market around, and we cannot rule that out. Even with the warmer change, the medium range guidance still projects a pattern that often brings cold into the U.S, with upper level ridging around Greenland (negative NAO), and another upper level ridge along the west coast of North America, poking up toward Alaska (negative EPO). With all of these moving parts making up the natural gas landscape, constant monitoring is required to stay ahead of changing conditions. We can help with that. Sign up for a 10-day FREE trial here to take a look at our suite of products designed to combine both weather and natural gas fundamentals in order to present a clear view on future natural gas price movement.