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.