Natural Gas - Southeast Ridge Preventing A Very Bullish Outlook
Summary
- Natural gas prices are falling as the outlook is not nearly as bullish.
- The Southeast ridge in the outlook is preventing a very bullish outlook to return.
- HDD forecasts are still above normal, but with the lack of "very" bullish weather, momentum has taken over.
- Our long UGAZ position was stopped out at $35 last Friday, but we are still looking for a long opportunity as the market has over-discounted the rest of this winter.
- 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. Get started today »
Welcome to the Southeast edition of the Natural Gas Daily!
Natural gas prices are falling again today with March below $2.7 to trade around $2.665/MMBtu. The price drop came from the bearish HDD revisions over the weekend with GFS-ENS losing the most HDDs and ECMWF-EPS showing a slightly more bearish outlook for the 15-day.
Source: StormVistaWxModels.com
As you can see above, the issue with the current weather outlook is that there's a ridge formation in the Southeast. That Southeast ridge is preventing very cold air from penetrating the demand regions in the US, the Northeast.
On an HDD basis, the forecast is still for higher than normal HDDs, but that SE ridge is preventing the weather from turning "very bullish."
Source: StormVistaWxModels.com
Is today's sell-off justified by the still better than normal outlook? No, but momentum has taken over due to an important technical breakdown.
In our view, the only way for the momentum to turn is for the weather to be decisively bullish, which isn't the case at the moment given the Southeast ridge.
Our trading position and game plan
We were stopped out of our long UGAZ position on Friday at $35.
Our view is that winter is not over yet despite the pessimistic view in the market. While the prospects for a major price spike is now nonexistent given that the main heating demand season is almost over, we think the upside risk is still present given the lower than normal storage levels.
Our latest forecast for EOS is still showing sub ~1.3 Tcf storage, so the market may be too complacent by pushing prices to this level given there's still the second half of February left.
Our game plan will be to reenter the long position of tonight's ECMWF-EPS long-range which confirms the bullish outlook for the 2nd half of February. We will need to monitor the Southeast ridge to see for signs of it going away. We know based on the recent models that if the SE ridge goes away, the forecast for cold returns to Northeast takes place, which would boost HDDs. We will be watching that closely.
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