Welcome To Winter Gas Trading: Natural Gas Prices Spike On The Back Of Bullish Weather

Nov. 05, 2018 2:24 PM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL24 Comments17 Likes


  • Welcome to winter gas trading as the widow maker makes a return with a price spike higher today.
  • Weekend weather model revisions were overwhelmingly bullish, resulting in storage to be revised 80 Bcf lower.
  • But the duration of the cold blast mid-November is being called into question as the weather flips more neutral by November 20th.
  • Looking for a community to discuss ideas with? HFI Research Natural Gas features a chat room of like-minded investors sharing investing ideas and strategies. Start your free trial today »

Welcome to the holy moly that's a real spike edition of Natural Gas Daily!

You have to feel for the natural gas bears today. With December contracts ripping 7.58% today to $3.533/MMBtu, the sudden gap higher in trading was the result of another early November cold blast. This would make the bullish weather calendar streak at eight months straight. Ouch.

To put into context just how bullish the weather outlook got over the weekend, the impact to natural gas storage was 80 Bcf. Yes, 80 Bcf.

This is what it looks like if we put it relative to the five-year average. You see that drop to -650 Bcf to the five-year average deficit by the middle of November? That was what happened over the weekend.

Another good way is to put it into context in heating degree days. Here's the forecast from Friday morning:

Here's the forecast from this morning:

The early cold blast in November is expected to happen between Nov. 9 to 18. This resulted in our storage forecast for 11/16 week to jump to -80 Bcf. Putting this storage draw into context, the five-year average is -25 Bcf while last year's was -46 Bcf.

But it's not all rosy for the natural gas bulls...

Source: StormVistaWxModels.com

The duration of the cold blast is being called into question as the Northeast is expected to turn potentially warmer than normal by November 20th. As a result, it's not only important to watch for total changes in HDD, but it's also important to watch for the "trend" via the 15-day outlook.

For now, we continue to expect price volatility to be skewed to the upside. Our trading bias continues to be on the bull side, but if the natural gas bulls overextend the short term while the weather outlook flips warmer, then we will be inclined to take very short-term bearish positions.

An important reminder for readers trading natural gas. ECMWF-EPS now updates at 3:00 AM EST and 3:00 PM EST. This is the weather model that can materially move natural gas prices, so stay alert at those time frames.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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