Tuesday, September 24, 2019 at 11:03AM
The start of the fall season has often been a happy time for natural gas bulls, as traders look ahead to the upcoming winter, pushing prices higher as the market prices in risk premium in the event of a colder than normal winter. This shows up well in our seasonality chart, which shows a long-term tendency for rallies from late September into October. But there is one contrarian item that jumps out on that chart. Notice the trend just over the last 5 years actually favors a *lower* move in prices from now through late October, bucking the long-term seasonal trend. Why the change in trend? Some of it is tied into the weather patterns, as an average of the last five October months is quite warm. While the start of October can contain enough CDDs to be marginally bullish if the South is hot, warmth in October quickly becomes bearish, as HDDs become more important to the demand picture, and a warmer pattern can significantly reduce the HDD count. Will this year follow the path of the last five years, or follow the more bullish longer-term seasonal trend? So far, the market has gotten a head start on selling, as prices have moved more than 15 cents off last week's highs. The weather pattern also remains in warm mode in the key natural gas consumption regions, seemingly following along with the bearish trend in recent years. It is important to note, however, that day 15 is October 8th, meaning that we do not yet "see" much of October in the modeling. While there is no imminent turn colder on the way, we only need to look back at last year to find a pattern that quickly flipped from very warm in key areas to very cold in the middle of October. Time will tell if such a flip can occur again this year. We will be closely monitoring all of the atmospheric signals in order to stay ahead of any potential market-moving changes. Sign up for a 10-day free trial here to take a closer look at what our current research suggests.