Natural Gas - Weather Model Volatility Continues
Summary
- We have -90 Bcf for Nov 15 report. A draw of 90 Bcf would be compared to -32 Bcf for the 5-year average and -134 Bcf last year.
- Much of the volatility in recent days can be attributed to the violent swings in weather model projections.
- Now both weather models are trending bullish once again, but traders we talk to are calling into question just how durable this cold trend is.
- GFS-ENS is showing a much more bullish outlook, while ECMWF-EPS is calling into question the duration of the bullish outlook.
- In our view, once we have a better grasp of the incoming set-up, we will take a directional view, but for now, the outlook is uncertain but with a bullish bias.
- Looking for a helping hand in the market? Members of HFI Research Natural Gas get exclusive ideas and guidance to navigate any climate. Get started today »
Welcome to the volatile model edition of Natural Gas Daily!
Housekeeping item first.
We have -90 Bcf for Nov 15 report. A draw of 90 Bcf would be compared to -32 Bcf for the 5-year average and -134 Bcf last year.
Weather Model Volatility Continues
Late last week, we wrote an article titled, "Natural Gas: Massive Weather Model Divergence Presents Excellent Trading Setup." And living up to its name of being the widow maker that it is, natural gas weather models flipped bearish over the weekend resulting in prices to gap lower and our UGAZ position to be stopped out.
Source: HFIR NG Trading Portfolio
Much of the volatility in recent days can be attributed to the violent swings in weather model projections. Take for example what the weather outlook looked last Friday vs. today.
Last Friday
Today
While the casual observer will notice that TDDs remain largely the same w-o-w, the volatility since then has been massive with GFS-ENS and ECMWF-EPS both flipping bearish first (over the weekend) before trending bullish again.
Now both weather models are trending bullish once again, but traders we talk to are calling into question just how durable this cold trend is.
Source: HFIRweather.com
Source: WeatherModels.com
Now notice that the GFS-ENS blocking signature from Alaska to Canada is much stronger than ECMWF-EPS. This results in a more durable cold forecast as opposed to the ECMWF-EPS forecast which is suggesting that this may be short-lived.
This diverging view right now is also creating a lot of uncertainty for those trying to take a directional bet on prices. If the cold is durable and persists into December, then we should see prices grind higher back to $2.8/MMBtu. But if it doesn't, then prices will move lower to $2.4/MMBtu.
In our view, once we have a better grasp of the incoming set-up, we will take a directional view, but for now, the outlook is uncertain but with a bullish bias.
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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.