Thursday, January 17, 2019 at 4:53PM
After Monday's break upwards, the story in the natural gas market has been much of the same this week, with cash strength and bullish overnight weather model guidance sending prices into highs early in the morning before warmer afternoon models cancel out those gains and pull prices back into the settle. Today, the February contract just barely eked out a gain of less than a percent. Gains were rather uniform along the natural gas strip as well. Yet volatility remained, with the average daily trading range continuing to move higher. The recent trend has been for overnight weather model guidance to trend colder, something we noted in our Morning Update would help drive prices higher this morning. Then afternoon model guidance has backed off the intensity of that cold, as seen on the afternoon GEFS below (images courtesy of Tropical Tidbits). Selling started a bit earlier today as well following an EIA natural gas storage number that was right in line with expectations. The EIA announced that 81 bcf of gas was withdrawn from storage last night, in line with our estimate of 83 bcf. After a significant amount of holiday noise and demand destruction, this print much better fit our expectations and confirmed our current reading of the natural gas supply/demand balance. It also showed balance tightening with less of that demand destruction. Still, that wasn't enough to ease selling off warmer afternoon weather model guidance as traders became less concerned about cold later in February. This is not to say that cold is not coming, as the below CPC forecasts show cold is still very likely, but rather just that models are still bouncing around on the intensity of that cold. Immediately after the EIA print we sent out our EIA Rapid Release to clients that put the print in historical context and outlined how we expected prices to respond to it. We also sent out our Note of the Day with the latest weather-adjusted balances and in our Afternoon Update outlined our latest natural gas sentiment and explained how we saw price risk skewed into next week. Try out a 10-day free trial here to give all this research a look.
Wednesday, January 16, 2019 at 5:01PM
It was another volatile day in the natural gas market as bullish overnight weather model guidance combined with strong Henry Hub cash prices to shoot the February gas contract up over 5% this morning before warmer mid-day weather model runs pulled prices down quickly. After the dust cleared, the February gas contract settled down over 3% on the day. The February gas contract led the whole strip lower this afternoon, but the March contract followed close behind. Spring and summer gas was then much more firm with production still off highs. The result was only a small tick down in the February/March contract spread, which remains quite elevated. This spread continues to sit outside the historic range with storage levels below average, though around this time last year it shot even higher. It's ultimately up to the weather to determine where this spread (and February gas prices) heads from here. This afternoon the GEFS trended warmer in the 11-15 Day time frame, and though current forecasts are still cold the intensity eased off (image courtesy of Tropical Tidbits). This came after our Morning Update where we highlighted an overnight GWDD addition that we said would be "Slightly Bullish" for gas prices today. Yet our mid-day Note of the Day highlighted signs we were seeing along the natural gas futures strip that indicated on even small GWDD losses prices could fall off significantly through the day. That's exactly what happened, and now gas prices are sitting near the Sunday evening gap. Where they head next will be a blend between weather forecasts into the end of the week and EIA data tomorrow, which should show a natural gas storage draw around what was observed the week prior despite slightly fewer GWDDs. In our Afternoon Update we outlined how we see natural gas prices as likely to trend from here based off the latest weather model guidance and balance data. We also explained our thoughts on how weather models will trend into the weekend and into next week, and looked at tomorrow's EIA print and how it could impact prices. To give that report, alongside all our other detailed weather and gas-driven analysis, try out a 10-day free trial here.
Tuesday, January 15, 2019 at 4:09PM
After spiking yesterday, the February natural gas contract pulled back a few percent today as forecasts struggled to continue cooling. Once again the role of weather was clearly evident with the prompt month February contract selling off the most on the day. Our Morning Update showed this well, as we indicated that GWDD expectations were a bit below where they were in our Afternoon Update yesterday. Climate Prediction Center reflected these medium-range trends as well in their afternoon update where they showed less confidence in 6-10 Day cold. Still, cold weather seems very likely to win out through this period. This is not to say significant cold is not still coming. For one example, the American CFSv2 climate model continues to show very significant Week 3 cold risks. Rather, models are attempting to determine just how bullish the weather will end up being to close out January, with the intensity, placement, and durability of the strongest cold air still in question. This could have significant impacts on regional gas prices given differences in storage levels across the country. In a live chat for subscribers we ran through this, including recent storage trends in the Midwest where we have seen storage levels quickly move back inside the 5-year range. That's certainly not the case in the Mountain Region, though. We also released our Seasonal Trader Report today with our 5-month GWDD forecast and seasonal trade idea generator. Our ideas from last week already worked out very well with the February contract and implied volatility spiking yesterday. This week we focused on how long cold could last in February and whether any could carry into March, outlining potential price impacts. Of note was a very wide range in potential El Nino outcomes on the most recent run of the American CFSv2 climate model. Traders will certainly be keeping a close eye on the latest weather forecasts moving into the day tomorrow, while also beginning to position for Thursday's EIA print and taking into account the latest supply/demand balance figures. We have that all covered for our subscribers, and you can see our take on all that data and expected price impacts with a 10-day free trial here.
Monday, January 14, 2019 at 5:19PM
February natural gas prices skyrocketed almost 16% higher today, gapping up significantly last evening and continuing to move higher through the day today. The role of weather was very readily apparent with the February gas contract dragging the whole strip higher on the day. Most notable was a huge move higher in the February/March G/H spread relative to the last time prompt month gas traded around these levels. Our subscribers will well-prepared for this move. Our Pre-Close Update on Friday highlighted that we should see "Moderately Bullish" weather forecast trends over the weekend. The result was a Slightly Bullish sentiment that said at least $3.25 should be tested today following Friday's rally, which verified well as we gapped slightly above that level. Then this morning our sentiment remained "Moderately Bullish" as we outlined the potential for prices to continue running on severe cold to at least $3.5 even up 9.3% on the day already. Climate Prediction Center forecasts show this well with increased 6-10 and 8-14 Day cold risks this afternoon. We had remained consistent in our reports over the last couple of weeks indicating that significant cold in the final half or third of January was very likely, explaining consistent bullish weekly and seasonal natural gas sentiment that has finally played out. Our Seasonal Trader Report from December 18th shows this well. Cold in January took slightly longer to arrive than expected, but is now arriving in such force so as to make our mid-December January GWDD forecast realistic again. Meanwhile, tomorrow we will be updating our Seasonal Trader Report with our latest February and March GWDD forecasts and looking out along the natural gas future strip to where we see the most opportunity. This will complement a wide array of weather and gas-driven research we'll continue to put out this week as volatility returns to the natural gas market. Try out a 10-day free trial here to put all this research to use.
Friday, January 11, 2019 at 4:19PM
After what was a relatively slow week for natural gas prices, the February gas contract finally shot higher as all model guidance increased the intensity of cold in the final third of January. The contract logged an over 4% gain into the settle and continued higher sitting now up more than 6% on the day. It was actually the March contract that eked out the largest gain on the day, with the February contract taking the lead post-settle but the entire strip rallying. This is exactly the rally we had been warning clients about all week was possible once weather cooperated, as we outlined that we expected bullish weather trends this week and held a "Slightly Bullish" weekly natural gas sentiment. In our Afternoon Update yesterday we highlighted that our Slightly Bullish sentiment would continue into the day as we expect the dip yesterday afternoon under $3 would be brief, and in our discussion we said that "...with supportive model guidance $3.1 is in play tomorrow and/or early next week..." Finally, this morning in our Morning Update we reiterated that both $3.1 and $3.25 were in play into early next week, and we expected a rally today on overnight GWDD forecasts that held yesterday's colder trends. We also outlined that 12z models and Week 3 forecasts were likely to turn more bullish today. All this verified well with American and European model guidance showing very significant Week 2 cold risks this afternoon that shot gas prices through resistance. It started with American guidance, which showed very significant cold Days 12-16 (images courtesy of Tropical Tidbits). The Climate Prediction Center picked up on this too, increasing Week 2 cold risks in their latest forecast this afternoon. Their afternoon update also showed that cold was likely to linger in the East through Weeks 3-4. This was the main focus of the Pre-Close Update that we just sent out to subscribers, as it outlined our expectations for how weather model guidance trends over the coming weekend and how that can impact natural gas prices. We outlined our thoughts on whether the cold on afternoon model guidance would stick around, then highlighted gas price risk next week and a couple target levels we are looking at. We addressed the recent trends in the cash market and daily supply/demand balance changes that have influenced prices as well, ending with a brief look at contract spreads. To give this report a look, and begin receiving all our highly detailed weather and natural gas analysis which can keep you one step ahead of the market, try out a 10-day free trial here.
Thursday, January 10, 2019 at 4:36PM
Gas prices got going early this morning, running up towards $3.1 resistance before reversing lower into the morning's EIA natural gas storage number. Despite a fairly bullish number prices continued lower through the afternoon as the physical market lagged, with the February contract settling down about half a percent on the day. As has been the case all week, it was the March contract that lagged the most through the day. This move came despite the EIA announcing a -87 bcf net implied flow of natural gas from storage next week compared to our estimate of -75 bcf. Another 4 bcf of gas was reclassified from working to base gas, resulting in a weekly net storage change of -91 bcf. Yet not even this could save gas prices, as cash prices sunk through the morning and afternoon GEFS model guidance decreased cold risks slightly (images courtesy of Tropical Tidbits). Still, it was a jumpy day where the main story continues to be summer gas strength versus March weakness, with the February contract stuck in between as the February/March G/H spread continues ticking higher. Meanwhile, the H/J March/April spread continues to sell off and is now inside the historical range of the last few years. This comes as, even with today's slightly larger storage number, storage levels fell far less than the 5-year average of -187 bcf. Additionally, though the print was tighter than last week's pull and expectations, it was still loose to the last 10 weeks on aggregate. Now traders are focusing back on long-range weather expectations and the latest daily balance developments to determine the next move for gas prices. Despite daily moves under $2.9 and near $3.1 over the past week and a half, most recent settles have been right around the $2.95-$2.98 range, with prices proving unable to sustain any move outside this range. In our Afternoon Update and Note of the Day for clients today we highlighted which direction we saw a move as more likely, as well as what risks were to current weather forecasts moving forward. Try out a 10-day free trial here to put all this research to use.
Wednesday, January 09, 2019 at 4:19PM
The February natural gas contract logged another small gain today, ticking higher by about half a percent as forecasts continued to trend slightly colder later in January. Like yesterday, the March contract was the weakest on the day while we saw significant support from later 2019 contracts with production still off highs. Accordingly, the March/April H/J spread continues to tick on lower. This came despite some colder trends in long-range forecasts, as shown by the arrival of Week 2 cold risks and far fewer warm risks on Climate Prediction Center forecasts this afternoon. Our Morning Update reiterated that these trends were likely, as we held a "Slightly Bullish" sentiment for the day and highlighted that Week 3 trends were likely to be bullish with 12z weather model guidance likely to add GWDDs. Meanwhile, long-range CFSv2 climate guidance, which typically is warm-biased, is showing modest cold risks across the East Weeks 3-4 as well. Traders are weighing these weather trends against expectations for tomorrow's EIA print, where we expect a decently larger than last week (but still loose) storage draw to be announced. Gas Weighted Degree Days were decently below average last week, so this should not be a surprise. In our Afternoon Update we sum this all up, explaining our estimate for tomorrow's EIA print as well as how we see weather model guidance trending after some colder risks on 12z runs. We similarly delve into the latest spread action and balances in the gas market, which we use to determine how prices likely react to misses in either direction with tomorrow's EIA number. Try out a 10-day free trial here to give it a look.
Tuesday, January 08, 2019 at 4:45PM
The February natural gas contract logged a small gain on the day, with colder mid-day weather model runs being canceled out by warmer European model guidance into the settle and limiting the gain to just under 1%. This February gain was in line with what we saw for most contracts in 2019, and it was actually the summer contracts that were the strongest on the day. The March contract meanwhile logged a small loss. The result was a large move higher in the February/March contract spread back to recent highs. Meanwhile, the famed March/April H/J spread actually fell to new lows on this March weakness today. Prices were initially quite strong on overnight GWDD additions that we outlined in our Morning Update. This followed a turn in our sentiment to "Slightly Bullish" in our Afternoon Update yesterday, which verified well as prices shot over $3 multiple times today. Of note was a recent dip in production since the new year, which has kept supply more limited. After ramping into the new year, year-over-year production growth is only sitting around 9 bcf/d right now. This could help increase upside in gas prices if it persists and weather forecasts trend colder; we outlined the possibilities of this in our Note of the Day, Afternoon Update, and subscriber live chat. We also released our Seasonal Trader Report today, where we looked at our forecast through the remainder of winter and considered the impacts of a recent weakening in El Nino conditions. To view all this research and see how we see natural gas price risk skewed over the coming few weeks, try out a 10-day free trial here.
Monday, January 07, 2019 at 4:05PM
Stop us if you've heard this before: Cold later in January was delayed yet again over the weekend, sending the February natural gas contract over 3% lower on the day. The role of weather was incredibly evident with all the losses right at the front of the natural gas futures strip. The result was that the G/H February/March contract spread approached lows previously set last week. Following a bearish EIA print last Friday, it was weather that seemed to keep prices buoyed. That catalyst was eliminated over the weekend, as in our Morning Update we highlighted a significant weekend GWDD loss which led to the Sunday evening gap lower. In our Natural Gas Weekly Update published after that Morning Update we outlined our expectation for how weather forecasts will change through the week as well as what kind of balance Thursday's EIA print may reveal following last Friday's very bearish print. Of note was a recent significant tick higher in natural gas Salt storage. We also outlined what the latest Nino and tropical forcing developments could mean for weather model guidance this week, and compared our long-range forecast to the Week 3-4 forecast of the Climate Prediction Center. Finally, in our Afternoon Update we ran through afternoon weather model guidance and expected overnight trends, showing that generally afternoon model guidance fit expectations with Climate Prediction Center Week 2 forecasts little-changed. To give all this research a closer look and see how we can help you manage your weather and natural gas-driven risk, try out a 10-day free trial here.
Friday, January 04, 2019 at 4:15PM
Excitement began to return to the natural gas space as the February contract shook off a very small storage draw announced by the EIA to rally over 3%. The February contract was not alone, as the entire natural gas strip rallied today. Such a bullish move was not particularly surprising as this morning in our Morning Update we changed our daily natural gas sentiment to "Slightly Bullish" for the first time as we saw "increased long-range cold risks" that could support prices, with GWDD additions helping cancel out what we said would be, "...a very bearish EIA print..." Yet this very bearish EIA print turned out to be even more bearish than we expected, as we were looking for a -42 bcf net implied flow to be announced by the EIA before they announced a minuscule -20 bcf net implied flow. All last week we had been warning clients that we were looking at the loosest weather-adjusted power burns of the season, and we did see bearish risks with our estimate today, but the magnitude of the miss was certainly a surprise with a large 22 bcf build in Salt storage. While the print was quite loose relative to the last several weeks, there is little doubt that the Christmas holiday played a large role too, as comparatively the storage withdrawal was not *as* loose when looking at just other weeks that held Christmas. Yet gas prices shook this off as we warned was possible in our Morning Update, and some colder risks on afternoon GEFS weather model guidance helped as well (images courtesy of Tropical Tidbits). Following the EIA print we released our EIA Rapid Release, running through our reading of weather-adjusted balances from the storage number, as well as our Note of the Day looking at Week 3 weather forecasts and daily weather-adjusted demand and supply. Then just recently we released our Pre-Close Update which outlined our expectations for how weather model guidance will trend over the weekend and how we see natural gas price risk skewed next week. To give all this research a look, try out a 10-day free trial here.
Thursday, January 03, 2019 at 4:16PM
It was another slower trading day for natural gas today, with the February contract settling down around half a percent as traders weighed a dip in production against weather forecasts that still showed very few cold risks. Losses were about equal at the front of the strip, with the front few contracts generally moving in tandem after the February contract was initially the weakest early this morning. Our Morning Update highlighted a Neutral sentiment again today but said that our $2.92 support level was "at risk" of being temporarily broken today as overnight forecasts did not trend much more impressive. This happened through the morning on cash weakness, but only briefly. Yet we also saw early signs that afternoon model guidance could trend more favorable for cold weather in the long-range for the first time, with our 12z expectations in our Morning Update finally ticking slightly bullish. Sure enough, afternoon GEFS weather model guidance ticked a bit colder in the long-range, helping provide some support at the front of the natural gas strip (images courtesy of Tropical Tidbits). Of course, this colder weather comes after a period of significant warmth, limiting any potential bullish impact. Meanwhile, traders are closely watching tomorrow's EIA print for evidence of just how much balances loosened over the Christmas holiday. While there was a slight tick higher in GWDDs week-over-week, the Christmas holiday destroyed quite a bit of demand and traders are expecting a decently smaller withdrawal. Our Afternoon Update ran through our expectations for the EIA print out tomorrow, and we will release our EIA Rapid Release and Note of the Day immediately after the number tomorrow putting it into context. It will be a matter of how loose, not if it is loose, meaning we'll be closely looking at the front of the gas strip to see just how much loosening it seems traders have already priced in. To read all our latest analysis and make sure you don't miss out tomorrow, try out a 10-day free trial here.
Wednesday, January 02, 2019 at 4:07PM
After getting slaughtered almost 11% on the last trading day of 2018, the February gas contract settled up less than a percent today with trading much slower overall. It was only the prompt month February contract that logged a gain on the day, though, with the rest of the gas futures curve still selling off. The result was a decent move higher in the February/March G/H spread even with the February contract not gaining much on the day. Trading today fit our expectations well as we highlighted in our Morning Update that "...we see strong support for prompt gas at $2.92 that should hold without further weather model deterioration..." yet as prices bounces in the AM we similarly highlighted that, "...we are skeptical it is that sustainable." This verified well with bounces generally failing through the day and prices dipping into the settle even as $2.92 held. Later in the day we published our updated Seasonal Trader Report as well, where we highlighted where we saw risk skewed for gas prices over the coming months. We looked at how the strip had moved over the past year as well, and noticed for the first time in a little while the front of the strip was settling below where it was a year ago. We updated our 5-month GWDD forecast as well as our storage modeling out to the end of withdrawal season. This came following our Note of the Day looking at the latest weather-adjusted supply/demand balances in the gas market, where of note was a recent dip in LNG exports. The report highlighted why there was some support today but also that it would be hard to pull prices off $2.92 into the settle, which worked well with afternoon weather model guidance and forecasts not changing much. Now, traders will be watching how balances begin changing with the New Year's festivities behind us. We saw some of the first evidence of what these lower prices are bringing today, but it should be more clear into next week, while Friday's EIA print should show just how loose balances were able to get last week. To see all our latest analysis on gas balances, weather risk, and price risk, try out a 10-day free trial here.
Friday, December 28, 2018 at 4:30PM
It was another rough week for natural gas bulls, with the February natural gas contract settling over 13% below where the January natural gas contract settled last Friday. With the January contract now off the board, it was the February contract that logged the largest loss on the day while the March contract actually saw the largest weekly loss. Weakness today was not particularly surprising as in our Morning Update we warned that "...overnight weather model guidance was unimpressive enough to put a test of $3.25-$3.3 in play..." Sure enough, this verified well with the February contract setting a low on the day at $3.278 as afternoon model guidance was again unimpressive (images courtesy of Tropical Tidbits). EIA data today did little to spark buying interest in natural gas too, with the EIA announcing a storage draw of 48 bcf. This was just 2 bcf from our -50 bcf expectation, and we quickly labeled the report as "Neutral" to subscribers in our EIA Rapid Release but noted that "...with any warmer model guidance gas can test $3.25-$3.3" after the print which verified well on warmer 12z weather model guidance. The print confirmed that the market had loosened in recent warm weather, showing that last week's tighter print was a bit of an outlier and following right in line with the balance of the last 10 gas weeks. In our Note of the Day today we also looked at the latest balance trends this week and how they could impact next week's EIA print, which also covers a week with quite a bit of warmth. Then in our recently released Pre-Close Update we outlined how we expect weather models to change over the coming weekend. In the Update we noted a clear warming trend in recent Climate Prediction Center forecasts, though this is based off of past weather model guidance. Though gas prices have fallen off quite a bit and implied volatility has taken a plunge, winter is far from over, and there are likely to be quite a few more price moves from here. Take a look at our Pre-Close Update to see how we expect prices to trend early next week by signing up for a 10-day free trial here.
Thursday, December 27, 2018 at 4:39PM
It feels like we say this every natural gas contract expiry, but the prompt month contract went off the board exhibiting quite a bit of strength, with January gas contract rallying 3% despite being lower much of the morning. The role of the January expiry was evident with the January contract leading into the settle, even as the February contract led among the winter contracts for much of the day. The result is that the January/February F/G contract spread ticked higher on the day, with the January contract expiring almost 10 cents above the February contract (which has sense pulled back further since the expiry). In our Note of the Day this morning we highlighted that F/G had risen into expiry each of the last 5 years, and that with any colder risks that would continue this year despite weak cash prices. All it took was a cold end to the European operational model to make it 6 years in a row. This came after we outlined in our Morning Update that, "...we see more upside risks for gas prices today thanks primarily to what has been a pattern of very strong contract expiries in this current trading environment. Though the strength seen in the December contract expiry is highly unlikely, there still appear to be enough cold risks in January to combine with the current storage deficit and let the January contract expire with strength." We saw this strength coming despite overnight GWDD losses. Meanwhile, traders were also preparing for tomorrow's EIA Weekly Natural Gas Storage Report, where a relatively small storage draw should be announced thanks to widespread warmth last week. We held our subscriber-only live chat today where we explored the details of tomorrow's print a bit more and highlighted our estimate, which calls for a looser weather-adjusted print than last week but one that is tighter than the week before. We also published our Seasonal Trader Report, looking at 5-month GWDD forecasts as well as end of draw season storage expectations and a few seasonal trade ideas. For the last few months the report has highlighted December as the month with the most warm risks this winter. Today we looked at when cold weather could return and what stable moderate El Nino conditions per the CFSv2 climate model mean for the rest of the winter. Things should remain busy tomorrow then with significant weekend risk before another holiday-thinned trading day Monday and an EIA report thrown in for added fun. Try out a 10-day free trial here to view all our latest gas and weather research and to see how we can help you prepare for the next large gas moves.
Wednesday, December 26, 2018 at 4:14PM
It was January contract options expiry for natural gas futures today, though excitement was certainly not what it could have been should December have verified colder. On the day the January contract settled up a bit more than 2% on lingering long-range cold risks following heavy selling Monday. Options expiry seemed to play a role, while loosening balances and expectations for a bearish EIA print to be announced Friday eased concerns about low storage, explaining why the March contract lagged. We accordingly saw a decent bounce in the January/March contract spread today despite only a modest January rally. Today's intraday bounce was not particularly surprising, as in our Morning Update we explained that prices under $3.5 were "undervalued" headed into options expiry given long-range cold risks. When we wrote this gas prices were down 3% on the day, and we sat bounce and watched them bounce solidly over $3.5 through the day. Prices were aided intraday with GEFS weather model guidance that showed widespread cold risks in the long-range (image courtesy of Tropical Tidbits). Meanwhile, we saw recent balance dynamics as potentially explaining much of the price action since last Friday. We highlighted that in our Note of the Day today, where we also looked at a recent increase in LNG exports as well. Due to the Christmas Holiday we released our flagship Natural Gas Weekly Update for subscribers today too, covering all fundamental and technical aspects of the natural gas market and updating our weekly sentiment. Of note in the report was a move recently in Salt Stockpiles much closer to the 5-year range, as Salt storage should move within that 5-year range in the coming couple of weeks with small injections likely to be reported there. We also included our expectations for Friday's EIA print, as well as how we see weather model guidance moving into next week and what today's spread action says about current risk skews in the natural gas market. To give all our weather and natural gas-driven research a more in depth look, try out a 10-day free trial here.
Friday, December 21, 2018 at 4:29PM
It was another wild week in the natural gas space, with prices gapping down and plunging Monday before shooting back higher Tuesday and falling Wednesday into Thursday. We then shot higher again today before a warmer European ensemble model run pulled prices lower into the settle where we are set to go into the electronic close right in the middle of the weekly range. Price settled on the highs for the day, though, and the result was actually a week that was basically flat for the January and February contracts. More weakness in the March contract meant that the January/March F/H contract spread settled near its highs for the week too. Generally, trading through the week fit our expectations. When prices were off significantly on Monday we highlighted that our Weekly Sentiment was still neutral as prices could test $3.5 but that early in the week prices should set a bottom with more impressive cold risks on model guidance later in the week likely allowing prices to bounce. This verified well as weather models trended colder through the week for early January, with forecasts in our Morning Update today showing much of Week 2 with GWDDs around to slightly above average. Yet we were cautious all week, warning that model guidance can still trend warmer into the end of December and that models can sometimes rush these colder changes as we highlighted in that Monday Report. This led to the overall Neutral sentiment, which we held into our Morning Update today while also explaining that "...risk increasing looks to be skewed upwards from these levels..." as "Under $3.75 gas seems relatively cheap." Sure enough, prices bounced through the day to settle above that level, but noted model volatility was enough to keep prices in check post-settle and verify our daily Neutral sentiment with Week 3 forecasts ticking a bit more bearish. We saw these mixed risks on Climate Prediction Center forecasts this afternoon too which kept some warmth across the East but showed a bit more cold risks in the center of the country. We expect choppy trading next week with low volume on a half day Monday for the Christmas Holiday. But traders will be closely watching the latest weather developments in the first half of January while also awaiting Friday's delayed EIA print, which will demonstrate just how much the market has loosened in warmth through the past week. We'll be constantly keeping clients up to date on the latest balance and weather dynamics, and we just released our Pre-Close Update where we broke down how we expect weather model guidance to progress over the weekend. Try out a 10-day free trial here to give it a look.
Thursday, December 20, 2018 at 4:48PM
Volatility remains the name of the game in natural gas, with at the money implied volatility continuing higher through this past week for the January natural gas contract which shot higher early this morning. It then plunged to re-test lows into the settle, and is now bouncing post-settle yet again. At the settle prices were down almost 4% on the day after being up even more than that earlier this morning. Again it was the January contract logging the largest loss on the day, with significant losses for the February and March contracts as well. Each of the moves seemed to have a reason today too. Overnight and early this morning traders were speculating that we could see a significantly bullish EIA print at 10:30 AM Eastern, and we noted small GWDD gains overnight too. Then the EIA announced that 141 bcf of natural gas was withdrawn from storage last week, which was a bit bullish to our estimate of 133 bcf. Yet despite this bullish miss to our expectations we highlighted to clients immediately after that we still only saw the print as "Neutral" for natural gas prices today as next week's print should be looser and weather remained in charge with more mixed risks. Sure enough, right after the print prices pulled back to the $3.75 level that we had highlighted in our Morning Update prices were likely to test. We then released our intraday Note of the Day highlighting that prices seemed fairly valued there, but much warmer afternoon model guidance would put $3.6 in play while colder guidance would put $3.9 back in play again today. American model guidance trended significantly warmer, and that was the impetus for the price move down to the $3.6 level that we settled near (model images courtesy of Tropical Tidbits). However, European model guidance post-settle trended colder, allowing prices to recover many of their losses and bounce back up. Climate Prediction Center forecasts showed these decreased warm risks in the long-range too. Just recently in our Afternoon Update we broke down the differences in modeling guidance and which we favored to win out over the coming week. We highlighted how that skewed natural gas price risk as well as what the latest balance readings indicated for end of draw season storage estimates. This comes after our Note of the Day looked at the latest weather-adjusted power burns and demand and our EIA Rapid Release showed whether today's EIA print was tight or loose to the 5-year average. To give all this research a look, try out a 10-day free trial here.
Wednesday, December 19, 2018 at 4:43PM
The January natural gas contract took traders on another wild ride today, shooting higher overnight then selling off hard this morning on weak cash prices and warmer overnight weather model trends. Yet afternoon models then trended back colder enough to allow a significant bounce, with the January contract settling down just 3% on the day. The role of weather and weak cash can clearly be seen with the January contract by far logging the largest loss on the day. The result was the January/March contract spread heading back to recent lows even as the January contract sits solidly higher than it did on Monday. In our Morning Update for clients today, we highlighted that while there may have been slight GWDD additions in some overnight forecasts, in the long-range we still did not see GWDDs getting above average in the first couple days of January. We highlighted that $3.5 could be put in play "...if models prove unable to increase cold risks by the end of the week..." when prices were back above $3.75. They proceeded to shoot lower following this Update to under $3.575, and in our Note of the Day we highlighted that afternoon weather model guidance would determine whether prices can trend to $3.5 or $3.75 this afternoon. Those cold risks arrived on afternoon model guidance, as Climate Prediction Center guidance shows for Week 2, and prices accordingly shot higher. Just before the settle the January contract tested the $3.75 level we had been watching for before pulling back and holding below it now post-settle. This comes as traders are weighing these colder weather models against tomorrow's EIA print, where a large storage draw should be announced off the coldest week of the winter draw season thus far. Already we have seen three days with continued significant gas volatility even with prices below $4, and we would expect that to continue tomorrow with the EIA data release and another round of weather model changes. In our Afternoon Update we summed up whether the latest round of weather model changes are believable, as well as where we see natural gas price risk skewed into next week and what's going on with the gas supply/demand balance this week. Try out a 10-day free trial here to give it a look.
Tuesday, December 18, 2018 at 4:50PM
If you're having trouble keeping track of all these daily natural gas moves, you're not alone. After falling almost 8% yesterday the January natural gas contract shot back higher almost 9% today to settle a cent above where it settled last Friday as long-range models began to hint at colder risks to start off January. Once again today's rally was front-led with the January contract logging the largest gain on the day. This comes as the January/February F/G spread was just finally beginning to move closer to past historical levels. If you're looking for evidence of today's rally on Climate Prediction Center products it would be hard to come by, as warmth through Week 2 remained on most model guidance. Rather, as noted in our Morning Update, Week 3 trends were solidly less bearish on overnight weather model guidance and overnight GWDDs were generally steady. We saw this as putting short-term upside to $3.75 resistance in play. Combined with some tighter balances we broke down in our intraday Note of the Day for clients, this was enough to bring about a short-squeeze that was furthered by colder American model guidance mid-day which helped break our $3.75 resistance level (image courtesy of Tropical Tidbits). We also held our subscriber-only live chat today, where among other things we looked closer at natural gas balances including the role elevated LNG exports have had in keeping balances a bit tighter so far the last couple months. The market continues to shoot around on the extrapolated Week 3 weather forecast as traders attempt to judge when cold weather can return and how that could impact natural gas stockpiles that will still be dangerously low even after this warm December limits drawdowns. Thursday's EIA print should offer clues as to how storage draws will look in upcoming cold shots; much of our research today dove deeper into our expectations for that print and where gas price risk is accordingly skewed around it. We also published our updated seasonal weather and gas forecast, and you can view all of this with a 10-day free trial here.