BWS Blog

Weather Volatility Continues: Colder Trends Erase More Than Half Of The Black Friday Natural Gas Selloff

Tuesday, December 03, 2019 at 10:42AM

One thing you can typically count on in the winter season is weather volatility, often in both directions, and this season is proving to be no different so far. Late last week, we were watching a sizable shift in the weather guidance toward a warmer pattern, which culminated with a massive selloff of nearly 23 cents in prompt month natural gas prices back on Friday. Mind you, anyone who has been around in the natural gas market for awhile will tell you that one must be careful trusting moves during a holiday period, as lower liquidity can exaggerate moves in either direction, but the picture did not look pretty for bulls either way.

How quickly things can change.

The largest change has come in the GEFS model since Friday. We previously picked on this model for busting to the cold side, but to show that weather is an equal-opportunity offender in both directions, here is what the GEFS shows currently for the 6-10 day upper air pattern:

natural gas commodity weather

Notice the ridge along the west coast up into Alaska, favorable for cold air transport southward into the U.S, seen in its temperature forecast for the same period.

natural gas commodity weather

Now let's look at what this same model showed back on Friday, valid the exact same dates.

natural gas commodity weather

There was no upper level ridging around Alaska, and as such, the flow was more progressive, almost zonal, which is not conducive for cold weather in the U.S. Here is what the model showed for temperature anomalies.

natural gas commodity weather

Whoa! It does not take more than a very quick glance to see that this pattern is not close to what it is showing today. Now, it is worth pointing out that the change in the ECMWF model (not shown here, but often a more reliable model, skill score wise) is not this drastic, but it, too, has moved colder due to similar reasons. The modeling clearly is struggling to resolve the features that will drive the upcoming pattern, which is great for price volatility, but can drive weather forecasters batty.

As of this writing, prompt month natural gas prices have made up around 13 cents of the nearly 23 cent selloff from Black Friday.

natural gas commodity weather

With weather being by far the main driver of price volatility, keeping track of the latest changes and forecast ideas is of the utmost importance for anyone active trading the natural gas market. That's where we can help. Sign up for a 10-day FREE trial here to take a look at all of the products we have to offer to keep you updated on developments not just in weather, but on the natural gas fundamentals side as well.