Natural Gas - Another Polar Vortex In The Making?

Feb. 08, 2019 6:34 PM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, GAZ56 Comments14 Likes

Summary

  • EIA reported a storage draw of 237 Bcf for the week ending Feb 1. This compares to the -240 Bcf we projected and consensus average of -245 Bcf.
  • For the week ending Feb 8, we have a storage draw of -90 Bcf. Our EOS forecast is now 1.262 Tcf.
  • We are long UGAZ as we believe March/April contracts are undervalued and the market is over discounting the prospects of another polar vortex hitting the Northeast.
  • We think March/April contracts should trade between $2.8 to $2.9. And if the weather models improve, then we see $3+ in the play.
  • 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 another vortex edition of Natural Gas Daily?

Housekeeping item first.

EIA reported a storage draw of 237 Bcf for the week ending Feb 1. This compares to the -240 Bcf we projected and consensus average of -245 Bcf. The -237 Bcf was significantly higher than the five-year average of -151 Bcf and last year's -119 Bcf.

Source: EIA

Next Week's Estimate

For the week ending Feb 8, we have a storage draw of -90 Bcf. This would be compared to the five-year average draw of -154 Bcf and last year's -194 Bcf.

Our EOS forecast is now 1.262 Tcf.

Our Trading Position

After getting stopped out of our original long position from Wednesday, we initiated another long position yesterday after the ECMWF-EPS 12z.

We are long 1,500 shares of UGAZ at $27.60.

Another polar vortex in the making?

There's a growing risk the current natural gas market is ignoring.

Source: StormVistaWxModels.com

And that is the risk of another polar vortex hitting the demand regions in the US. You can see in the 15-day cluster above the dark blue blob that's concentrated just outside of the Northeast. Now you can see the difference between the two forecasts above. The chart on the left is not as bullish as the chart on the right because of the Southeast ridge. The latest ECMWF-EPS long-range model shows the Southeast ridge to remain, but the Northeast is still expected to be significantly colder than normal.

On a heating demand basis, the last week of February could show heating demand to be ~20% higher than the 30-year average. Although storage draws naturally decline going forward, we think the market is not discounting this risk properly. But like with all things weather, the models could change overnight and what not, so it's important to stay vigilant on the updates.

So far, we are seeing most models confirm a much colder than normal outlook starting Feb 20th, so if the weekend models confirm, we think natural gas prices could march higher.

Another point we want to make is that given where storage is expected to be, March and April contracts are too cheap. Now natural gas prices can remain cheap, so it's important to have a catalyst, which in this case is the latest weather model update. We think March/April should trade between $2.8 to $2.9 and if the outlook improves further over the weekend, then $3+ is back on the table.

For now, we are long and we think the market is over-discounting the risk of another polar vortex hitting the Northeast.

For readers that have found our natural gas articles insightful, we think you should give HFI Research Natural Gas a try. We are now offering a two-week free trial, and we have the largest natural gas trading community on Seeking Alpha. Come and see for yourself.

This article was written by

HFIR Energy profile picture
8.13K Followers
The #1 natural gas research service on Seeking Alpha.

The #1 natural gas research service on Seeking Alpha.


----------

HFIR Natural Gas prides itself in offering variant perception investment research in macro natural gas analysis.

Due to high demand for HFI Research's natural gas premium only offering, we have decided to launch a cheaper premium service, HFI Research Natural Gas, for natural gas followers.

----------

HFI Natural Gas Premium will offer the current exclusive natural gas content HFI Research subscribers currently receive, they include:

- Daily Natural Gas Fundamentals

- Storage Projection Updates

- "What Are The Traders Saying?"

- A community of natural gas traders and investors to bounce ideas off of.

----------

HFI Research Natural Gas will not include the other benefits HFI Research subscribers currently receive, and for those interested in our full offering, you should visit our main page for information:

https://seekingalpha.com/account/research/subscribe?slug=hfir

Follow

Disclosure: I am/we are long UGAZ. 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.

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.