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Natural Gas Market: The Weather Forecast Is Bearish, But Also Less Relevant

Mar. 04, 2020 1:32 PM ETDGAZ, UGAZF, UNG, BOIL, KOLD, FCG, GASX, GAZ, UNL, MLPG22 Comments


  • This Thursday, we expect the EIA to report 2,088 bcf of working gas in storage for the week ending February 28.
  • We anticipate to see a draw of 112 bcf, which is 40 bcf smaller than a year ago but 6 bcf larger vs. the 5-year average.
  • On average, short-range weather models are projecting below normal amount of total degree-days over the next 15 days.
  • However, the weather factor is becoming less and less relevant as we move further into the shoulder season.
  • The weather has "removed" an estimated 1,200 bcf in potential natural gas consumption (over November-March).
  • This idea was discussed in more depth with members of my private investing community, Natural Gas Fundamentals. Get started today »

The Weather

Last week

Last week (ending February 28), the number of heating degree days (HDDs) declined by 13.4% w-o-w (from 177 to 153). We estimate that total energy demand (as measured in total degree days, or TDDs) was 15.9% below last year's level and 4.8% below the 30-year norm. Cooling demand remained too weak to have a meaningful impact on natural gas consumption.

This week

This week (ending March 6), the weather conditions are getting significantly warmer. We estimate that the number of nationwide HDDs will plunge by 21.1% w-o-w (from 153 to 121). Total average daily demand for natural gas should be somewhere between 105 bcf/d and 110 bcf/d, which is only 0.9% above the 5-year average for this time of the year. Total energy demand (measured in TDDs) should be as much as 42.5% below last year's level and 18.0% below the 30-year norm.

Next week

Next week (ending March 13), the weather conditions are expected to get even warmer. The number of HDDs is currently projected to decline by another 8.4% w-o-w (from 121 to 111). In annual terms, total energy demand (measured in TDDs) is currently expected to drop by 12.6%. The deviation from the norm should remain negative at approximately -18.9%.

Total Energy Demand

Source: Bluegold Research estimates and calculations

This winter season, the weather has been totally violent (for the bulls). Make no mistake - there is only one major reason why natural gas price is currently so low - it is the weather. Since November 2019, numerical weather prediction systems have shown significantly more "bearish changes" than "bullish changes" (see the chart below). The cumulative amount of changes in the number of projected HDDs was -514 (or at least -1,200 bcf in total potential natural gas consumption over November-March). Moreover, the largest bearish changes were for week 1, week 2 and week 3, which are normally covered by the standard short-range weather models.

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