Natural Gas - Prices Start To Bottom Out

Dec. 03, 2019 5:15 PM ETUNG, UGAZF, DGAZ, BOIL, KOLD, UNL, GAZ66 Comments25 Likes

Summary

  • For the week ending 11/29, we have a draw of -10 Bcf. This compares to -63 Bcf last year and -41 Bcf for the 5-year average.
  • Natural gas prices at one point recovered more than 7% before falling as the ECMWF-EPS run was underway. The discrepancy between ECMWF-EPS and GFS-ENS is monstrous right now.
  • From what we are seeing right now, GFS-ENS is far too bullish.
  • As a result, we think GFS-ENS will need to revise its outlook lower, which could see renewed pressure on prices at least in the short term.
  • We will be keeping an eye on the weather reports to see when we will go long. Timing-wise, we think it's in about 9 to 10 days.
  • 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 bottoming out edition of Natural Gas Daily!

Housekeeping item first.

For the week ending 11/29, we have a draw of -10 Bcf. This compares to -63 Bcf last year and -41 Bcf for the 5-year average.

Prices Start To Bottom Out

Natural gas prices at one point recovered more than 7% before falling as the ECMWF-EPS run was underway. The discrepancy between ECMWF-EPS and GFS-ENS is monstrous right now.

Both models have not been exactly very reliable over the last few weeks making natural gas trading extremely volatile. ECMWF-EPS has done a much better job keeping a more measured tone, while GFS-ENS has been wildly bullish only to temper back expectations.

Source: HFIRweather.com

From what we are seeing right now, GFS-ENS is far too bullish. In fact, the polar vortex displacement is coming almost 15 days ahead of ECMWF-EPS with the long-range forecast showing this event to happen closer to the end of December versus mid-December for GFS-ENS.

As a result, we think GFS-ENS will need to revise its outlook lower, which could see renewed pressure on prices at least in the short term.

But this doesn't mask the fact that the real long setup is coming which is the bet that January could be much colder than normal. By our estimate, if January turns much colder than normal, especially during the new year, we could see prices shoot up to $3/MMBtu for January expiration.

We've modeled in the bullish scenario and how it changes the price, and you can see a clear divergence here.

Now, traders may also be contemplating going long the widow-maker spread, which is to go long March and short April in the case winter does turn bullish. You can see that we forecast the spread to widen to as much as 35 cents.

Nonetheless, this is still reliant heavily on the weather outlook, but for the bulls, a warmer-than-normal December may translate to a much more bullish January outlook.

We will be keeping an eye on the weather reports to see when we will go long. Timing-wise, we think it's in about 9 to 10 days.

For readers that have found our natural gas articles insightful, we think you should give HFI Research Natural Gas a try. We provide the following to subscribers:

Come and see for yourself why we are the largest natural gas community on Seeking Alpha.

This article was written by

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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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