BWS Blog
Selling Continues In Natural Gas, With Prices Closing Lower Every Day This Week
Friday, July 19, 2019 at 3:37PM
This week brought quite the sea of "red" to the natural gas world, and we don't mean the kind on weather maps that is bullish. Prices closed lower every single day this week.
The week began with cooler weather changes to the balance of July, a risk that we had highlighted in last Friday's Pre-Close Update.
This brought "blues" (cooler than normal temperatures) to our 11-15 day forecast back on Monday for the first time in quite awhile.
Monday's forecast:
While the bulk of these cooler changes came early in the week, by Wednesday, the cooler weather along with our analysis of supply / demand balances led us to mention the risk of a move to the 2.25 level in the August contract, highlighted in Wednesday's Morning Report.
Two days later, here we are, right at the 2.25 level, still with significant cooling on the way next week, but coverage of below normal temperatures had lessened in today's 11-15 day forecast, as seen on today's maps.
After falling almost 25 cents from the highs of last week, is this enough to end the selling pressure? Our research can help answer these key questions to give a clear assessment of where natural gas prices are likely to go next. Sign up for a 10-day free trial here to see all of the products we have to offer.
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Market Brushes Aside EIA Number To Continue This Week's Selloff
Thursday, July 18, 2019 at 4:54PM
Natural gas prices extended this week's downward move today, with the prompt month August contract settling 1.7 cents down on the day, breaking below the 2.30-2.32 support zone.
Today's move lower came in spite of the EIA report that showed an injection of 62 bcf for last week, which was actually on the lower end of the range of market estimates.
This reflected tighter supply/demand balances that were tighter (more bullish) week over week, but that along does not tell the full story. Balances remained on the loose side of the trend line when looking at the same gas week over the last several years, much looser than last year.
Also, production declines started in the middle of last week ahead of Hurricane Barry's arrival along the Gulf of Mexico coastline.
As a result, the market can more easily discount this number, with the thinking that it would have been higher if not for Barry, hence the tightening may be somewhat artificial.
Add in the lack of strong heat in the weather forecasts beyond this weekend, and the bearishness makes a little more sense.
One thing is certain, however. This season has not had a shortage of solid price moves, despite fears to the contrary, and it is likely that there will be more to come. Our research is designed to keep you ahead of these changing market conditions, whether they come from the weather side, or a change in fundamentals. Sign up for a 10-day free trial here to take a look at the products we have to offer.
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The Role Of Weather In This Summer's Natural Gas Price Action
Wednesday, July 17, 2019 at 5:22PM
Today was a relatively quiet day on the natural gas front, with the August contract closing just two ticks lower than yesterday.
The weekly move has been decidedly lower, however, thanks in large part to the shift cooler in the weather pattern for the balance of July, bringing "blues" to the 6-15 day forecast maps.
This is stark contrast to the heat we've seen much of this month, which prompts us to take a look at how weather has played a role in the price action of natural gas so far this summer. Typically, the "weather factor" carries much more weight in winter than in summer. This is because of much higher gas demand in the winter months. The difference between a very cold winter and a very warm one can account for roughly 2 tcf in terms of natural gas demand, while in summer, the difference in demand between a cool summer and a top-end hot summer is only around 25% of that, in the realm of 500-600 bcf.
This summer, at least so far, has been a case where weather's influence has been more evident in price action, which can happen in cases where we do not have a notable paradigm shift in the supply / demand picture in the middle of the season. Here is the demand profile since 5/15/19, using the departure from normal in Gas-Weighted Degree Days (GWDDs) as the measure. This includes our 15 day forecast as well. We've highlighted the period where demand ran consistently below normal, as well as the recent weeks where demand has been consistently above normal.
As we look at prices, we see that, sure enough, when demand was consistently below normal, the direction of price action was generally lower, and as demand has remained consistently above normal, the direction of price action has generally been upward.
Of course, we do have the big drop this week while the pattern is still hot, but as we mentioned, that is the market pricing in the cooler forecast changes for the balance of July.
Now, we are not making the case that one should base trades only around weather-based strategies in summer. as results will not be this clean, typically. But is definitely an important piece of the puzzle.
We can help put all of the puzzle pieces together in a way which offers clarity when it comes to connecting weather and natural gas fundamentals in order to anticipate which way the natural gas market is likely to move next. Sign up for a 10-day free trial here and check out the suite of products that we have to offer.
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Natural Gas Prices Start The Week With A Slide
Monday, July 15, 2019 at 3:06PM
After initially jumping up at the Sunday evening open, natural gas prices quickly began facing downward pressure, which continued into the day today, with the August contract settling a few cents lower compared to Friday's close.
Why the weakness in the face of such strong heat on the way this week? Part of that answer lies in the move cooler in the forecast as we look into the final portion of July, which is expected to bring demand down to at least near normal levels.
Here is the forecast demand chart (GWDDs), showing this week's strong cooling demand, followed by the late month weakening:
In map form, we see the "blues" introduced in today's 11-15 day outlook for the first time in awhile in the eastern half of the nation.
While July is still set go down as a hot-dominated month, this late month cooler move is not a surprise. We highlighted the potential for a weaker 11-15 day in our Pre-Close Update to clients back on Friday.
We will have to see now if this is a lasting change, or if we soon migrate back in the hotter direction, offering more chances to boost cooling demand and perhaps lend natural gas prices more support. Our research can help keep you ahead of the situation, alerting you to key changes before they occur. Sign up for a 10-day free trial here to see the products we have to offer, including live chat capabilities and timely updates for trader level subscribers.
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Divergence Between Hotter Weather And Weaker Fundamentals Leaves Bulls And Bears Battling For Control In Natural Gas World
Tuesday, July 09, 2019 at 5:32PM
Since Friday's natural gas rally, prices have been stuck moving back and forth to start this week, thanks to opposing forces battling it out for market supremacy. The August contract closed a couple of cents higher today, after a slight down day yesterday.
In one corner, we have the weather pattern, which has shifted quite strongly to the hotter side over the last week or so, with widespread heat dominating the Midwest to East over the next couple of weeks.
As the chart on the bottom right shows, the increase in heat is enough to push the total July demand level to 3rd highest of all July months on record, behind only 2011 and 2012, now ranking even hotter than last July.
As bullish as that is, we are reminded that this is not winter, where weather alone can use natural gas as its own punching bag. This time of year requires at least some cooperation from the fundamentals side, and so far this week, the two sides are not being friendly to one another.
We've seen production make new all-time highs over the last several days, continuing its general up-trend.
Canadian imports also were back fully online last week, for the EIA report that will be released this Thursday.
The added supply aided in a pretty sizable build reported from DTI+TCO yesterday, indicating that this week's EIA number may reflect that supply / demand balances have turned back to the loose / weak side.
These factors have led to a stalemate, price wise, so far this week at the front of the natural gas curve as we wait to see which side blinks first. Can the hotter weather continue rolling into late July, perhaps even August? How much do we blame the holiday period last week for the weaker supply / demand balances? Our research can help provide answers to these key questions, providing guidance on which way the market is more likely to move next. Sign up for a 10-day free trial today to take a closer look at the suite of products we have to offer.
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Hotter Weather Trends Send Natural Gas Prices Soaring Higher
Friday, July 05, 2019 at 1:19PM
Natural gas prices are ending the week with a very strong rally, as the August contract currently is up a whopping 13 cents on the day.
What is causing such a rally in prices? The answer is a notable hotter shift in the weather pattern, as seen in our early morning GWDD outlook / changes.
Looking at the maps, while the most persistent heat lies out west in the 6-15 day period, there is a lack of cooler anomalies anywhere, which is keeping national demand elevated.
Zooming in on the chart at the bottom right of that image shows that the projected GWDD total for this July is getting close to the levels seen in July 2018, which was one of the hottest / highest demand Julys on record.
While this definitely represents a hotter July than the market was prepared for last week, or even to start this week, the magnitude of the rally was exaggerated due to the large short position that had built up in the market in recent weeks.
Many of these new shorts have had to cover heading into the weekend. This sets the market up for potentially another very interesting week next week, as we see if the weather pattern can hold these hotter changes, add to them, or revert back somewhat cooler. Our products can help keep you ahead of any market-moving changes in these volatile times. Sign up for a 10-day free trial here to take a look at what we have to offer.
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El Niño: Fluctuating Or Fading Away?
Wednesday, July 03, 2019 at 11:09AM
We continue to track the status of our El Niño event, as the direction it takes can influence the temperature patterns in the U.S, and therefore impact demand for natural gas. El Niño in summer generally translates to cooler temperatures and lower gas demand.
This worked out well for the month of June.
Recent weeks have brought about a stark weakening of our El Niño event, however, as seen in the latest NOAA data.
Despite the weakening, we still have warmer than normal sea surface temperatures in the equatorial Pacific out near the Date Line.
Zonal wind anomalies are turning back westerly as well in this region, which simply means a weakening of the trade winds. We have highlighted this in the black box below, as well as the last two times this has occurred in red.
These "westerly wind bursts" often tilt conditions more in the El Niño direction. The following image shows the buildup in heat content with each of the last two westerly bursts that were highlighted above.
As such, one would expect to see some "bounce back" with the El Niño state in the near future. However, subsurface temperatures in the equatorial Pacific have cooled significantly the last few weeks, with a lot of cooler than normal water showing up.
Could that be an indication that impact from this current westerly wind burst will be muted, potentially signaling the end of the El Niño base state? This is an important issue to tackle, as a re-strengthening of El Niño would keep the risk for hotter weather and higher natural gas demand mitigated, while a change in base state would increase the risk for higher late summer heat, and stronger gas demand. Our research can help keep you ahead of these potential market-moving changes. Sign up for a 10-day free trial here to take a closer look at all of the products that we have to offer, with much more to come in the near future.
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June Finishes As Coolest In Several Years
Monday, July 01, 2019 at 11:49AM
The month of June is now in our rear-view mirror, and has concluded as the coolest June we have seen in quite a long time, which added to pressure on natural gas prices in the last few weeks due to how low the weather demand was. In fact, this June had the lowest total number of GWDDs since June 2004 in our dataset.
While this was just one factor influencing natural gas prices, it is a big one, and as such, it is no surprise to see the movement down in prices, especially the first half of the month, which was the coolest period.
In map form, we see much of the nation covered in "blue", as one would expect with such a low GWDD total.
This general type of pattern comes as no surprise, given the El Niño base state that was in control of the weather pattern, as that promotes cooler risks in summer in many of the areas that were cool this June.
The El Niño state has shown some notable weakening in the last couple of weeks however, as shown by the daily region 3.4 anomalies.
Not coincidentally, the pattern has turned hotter, as we see from this week's modeled temperature anomalies.
This begs the question, is the weakening trend a sign of El Niño's demise, opening the door to more bouts of stronger heat as we move through the balance of summer, or is this just a blip that will soon reverse, preventing sustained above normal weather demand? Sign up for a 10-day free trial here and take a look at what our latest research suggests, and how it is likely to impact the natural gas market going forward.
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Natural Gas Prices Rally, Then Un-Rally In Today's Session
Friday, June 28, 2019 at 4:13PM
It was a roller-coaster ride for natural gas prices to end the week, with the August contract up as much as 4 cents on the day at one point before sellers stepped in, sending it to a daily decline of 1.6 cents, forming a shooting-star candle for the day.
Despite today's close, prompt month prices did rise just over 5.5% for the week, thanks in part to a notably hotter weather shift in forecasts for the early part of July. The current 6-10 day period from the latest GEFS model looks like this:
Contrast that with what the model showed 6 days ago for the same period:
Notice the large hotter shift, especially in the Southeast, one critical region for natural gas demand.
Those hotter trends had come to a halt in the last couple of model cycles, with our net GWDD (weather demand) change slightly lower this morning.
This brings us back to today's price action. Given the weather forecast and our interpretation of supply / demand balances, our view sent to clients in this morning's report was neutral, feeling that it would be difficult to sustain any further price rally.
While prices did rally on some strong initial Henry Hub cash prices, the rally indeed did prove to be unsustainable, reversing rather quickly after mid-morning.
Next week is a new week, and in this case, a new month as well. Our research in the world of weather and natural gas fundamentals can help you stay ahead of market-moving changes. Sign up for a 10-day free trial here and see all of the products we have available to add value to your operation.
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Streak Of Triple-Digit Natural Gas Builds Comes To An End
Thursday, June 27, 2019 at 4:19PM
After a run of six consecutive weeks with a reported natural gas build over 100 bcf, the streak finally ended with today's EIA report that showed we injected 98 bcf for the week ending 6/21.
This turned out dead-on with the estimate that we had held since the start of this week, outlined in our Monday weekly report.
While the build was well above the 5-year average build, it was reflective of much tighter supply / demand balances than we have seen for a long time, as the higher number was more a product of just being in a lower demand weather regime.
Many parts of the country saw cooler than normal temperatures, limiting natural gas demand.
The confirmation of tighter supply / demand balances helped prices stage a rally today, with the new prompt month August contract rising nearly 2.5% on the day.
Forecast demand is also on the increase, with much more above normal temperature coverage in the near term, boosting natural gas demand.
The longer the hotter pattern lasts, the more prices can continue to advance higher. Our latest research can keep you up to speed on that topic as well as others that will influence the movement of natural gas prices. Sign up for a 10-day free trial here to take a closer look at all of the products we have to offer.
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July Natural Gas Contract Marks Lowest Monthly Settlement Price Since June 2016
Wednesday, June 26, 2019 at 4:44PM
The July 2019 natural gas contract is no more, having rolled off the board today with a final price of $2.291, marking the lowest monthly settlement in just over three years, since the sub-$2.00 settlement of the June contract in 2016.
Very weak supply / demand balances have been the main culprit, but recent weather patterns have done absolutely nothing to help put a halt to the price declines, as almost every single day in the month of June so far has seen below normal demand levels.
In map form, you can see the dominance of "blue" colors, or, cooler than normal, which of course means less natural gas demand.
We are, in fact, looking at one of the coolest (lowest demand) June months that we've seen in several years.
This has been a definite contributing factor toward allowing us to see six 100+ weekly builds, per EIA reports.
The tide is turning, however, as we are finally about to string together several above normal demand days over the next week or two.
Hotter than normal temperatures will be focused across key areas of the Midwest to East in the near term.
As we showed yesterday, the hotter shift has already pushed prices up from the lows late last week. Will the pattern shift hold and continue to push prices upward from here? Sign up for a 10-day free trial here and take a look at what our latest research is indicating.
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Hotter Weather Trends Offer Support To Ailing Natural Gas Prices
Tuesday, June 25, 2019 at 3:00PM
Natural gas prices have suffered quite a decline over the last few weeks, thanks to very weak supply / demand balances. This has pushed to commodity to multi-year lows, with the July contract bottoming at $2.159 late last week. It has since found a little life, moving up around 15 cents off that low, closing just over the $2.30 level in today's session.
While prices had reached very oversold levels, part of the recovery has come from an improved weather pattern here in the latter part of June, with slightly above normal heat expected to persist into the start of July as well. Notice the elevated GWDD (the measure of national weather demand) over the next 15 days.
In map form, we see that there is a lack of "blue" on the maps, and while the heat we see is nothing extreme, the market has taken notice that it's not as tame of a pattern as what had been perceived.
We first picked up on this risk for some hotter trends back more than two weeks ago, at a time when the pattern was very cool versus normal, giving the "forecast trends" a slightly bullish rating in our "Pre-Close" update from June 7th.
That risk became reality as forecasts progressed, and at least contributed to giving prices a push higher off last week's multi-year lows. What's the next move from here? Sign up for a 10-day free trial here and take a look at the services we have to offer that can keep you one step ahead of the market.
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