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.