For the weather that affects the natural gas market, go here:
March natural gas had a last trading day on Tuesday, Feb. 26th.
Look how fast the mild weather in December and early January caused us to close the storage gap below.
We are still a bit below last year and the 5 year average but are within the bottom end of the 5 year range.
Note: The shaded area indicates the range between the historical minimum and maximum values for the weekly series from 2014 through 2018. The dashed vertical lines indicate current and year-ago weekly periods.
EIA drawdown from last Thursday was -177 bcf..............very bullish vs market expectations.
From Natural Gas Intelligence:
The Energy Information Administration (EIA) reported a 177 Bcf withdrawal from natural gas storage inventories for the week ending Feb. 15, 5 Bcf more than the highest estimate ahead of the report and a whopping 35 Bcf more than the lowest projection.
|Working gas in underground storage, Lower 48 states Summary textCSVJSN|
billion cubic feet (Bcf)
|Region||02/15/19||02/08/19||net change||implied flow||Bcf||% change||Bcf||% change|
Totals may not equal sum of components because of independent rounding.
Working gas in storage was 1,705 Bcf as of Friday, February 15, 2019, according to EIA estimates. This represents a net decrease of 177 Bcf from the previous week. Stocks were 73 Bcf less than last year at this time and 362 Bcf below the five-year average of 2,067 Bcf. At 1,705 Bcf, total working gas is within the five-year historical range.
These were the 7 day temperatures that were used for last Thursday's EIA report:
These are/were the 7 day temperatures, ending last Friday that will go into the next storage report, released this Thursday at 9:30am:
These were/are the temperatures, ending last Friday, for the next EIA report that comes out this Thursday.
These natural gas price charts aren't the greatest but they do show a potential double bottom with the low, a week ago Friday, 2-15 early morning, a tad lower than the week before, then closing higher that day and higher last week, close to the highs for the week on Friday 2-22.
NG 7 days
Natural gas 3 months below
Natural gas 1 year chart
This seasonal price chart below is for 2 decades, ending back in 2009. Not sure on what they use exactly to make their calculations but I've been following seasonal patterns since the early 90's(I paid thousands of dollars in the 90's to get seasonal charts for every commodity updated every 2 years) and this graph does a nice job at capturing the seasonality of natural gas.
The point of showing it is to show that natural gas has a strong historical tendency to go up from mid February into April.
The contract low/double bottom from the week before last, would be perfectly timed with a typical, end of Winter low, which is followed by increasing prices over 80% of the time into early Spring.
Considering how low the price is right now and the reversal up that day(new contract low-higher close), if the pattern morphs back to looking extremely cold later in March, it would increase odds for higher prices even more.
One should also note that at this time of year, when most of the heating season is over, weather/cold temperatures that increases heating demand in the high population centers has less power to determine prices.............as long as supplies aren't precariously low or the demand/supply fundamentals are not extremely tight. Fundamentals are actually pretty bearish........note the life of contract lows for price even though storage is still less than the 5 year average.....because the market feels very comfortable...... is projecting additional storage gains from supplies gushing in.
12Z Sun GEFS vs 12Z Fri GEFS: +9 HDD 3/25-3/9
12Z Fri GEFS vs 0Z Fri GEFS: ~+2 HDD for days 6-15
12Z Sun EPS vs 12Z Fri EPS: ~+16 HDD
12Z Fri EPS vs 0Z Fri EPS ~-7 HDD
Both lost some for 2/28-3/1 but also both gained a lot for 3/3-6. The net is an increase of HDDs (a bit bullish I'd guess but who knows since NG can be whacky/doesn't like to go up these days).
Thank you Larry!
As expected, with the additional HDD's, ng gapped moderately higher on the open.
This might serve as a break away gap considering the chart pattern, time of year/seasonals and potentially more bullish supply dynamic(if the last EIA was not a fluke).
If we can get the late week 2 pattern to not warm up, we should be able to add to the gains.
If we close the gap, then its a gap and crap formation and potentially pretty bearish.
Why might the gap close?
If models warm it up and last weeks bullish EIA was a fluke.
I still have my doubts as to how much wx is in the forefront. If it had been, I would have expected it to be up more steeply at the open as well as not struggling near the bottom of today's range. I say that not only because of what I had given you earlier, but also because the 18Z GEFS added still another 14 HDD to the prior run's total. The MMs/certain larger entities have been trying their hardest to keep it down via their algorithms despite a resumption of an increasing storage deficit.
I look at it a bit differently.
A week of major cold to start off March is what we are talking about here and during a period that was already cold last week but just got colder.
How important is that really in the big picture at the tail end of a heating season that gained over 500 bcf in storage vs the previous year?
And we had a gap higher and are trading above last weeks highs...........and the cold moderates to close to average at the end of week 2, with the pattern looking to change to milder.
I think we can go higher if the pattern stays cold thru March........from the extra cold but it's March and supplies are not precariously low anymore.
Seasonals are very strong here, so I'm careful about being short.
Yeah, we keep seeing things very differently on this. That's ok. I'll leave it alone (not due to agreement obviously).
I wasn't the moderator last year when we disagreed on this but now that I am...............you're right Larry (-:
NG is zzzzzzz. Back and forth endlessly mainly between algos with little movement down or up. In the bigger pic, I think it usually wants to go down due to higher production but very cold forecasts have been keeping it from dropping. So, you'd have high production related bearish algos followed by intense cold bullish algos. They keep handing off to each other. The net effect is a very tight range that could put one to sleep if one were to watch.
Edit: It finally had some decent movement in one direction with that being up. Perhaps the rather long period of intense cold was finally too much for it to stay down.
No, that wasn't it Larry.
Look at the big increase in HDD's for the GFS Ens and Euro operational.
Thats what did it
Yeah, I saw those price rises. And I fully understand it rising because of the overall very cold coming up and the support most every model run has had for that oncoming intense, widespread cold However, I don't know how it can be stated with confidence that much of the rise can be attributed to any particular model, especially the 12Z GEFS because:
1) There have been many recent colder model runs with similar HDD increases but with little or no price rise as if the market didn't care much.
2) If you compare NG from before the start of the 12Z GEFS to after, it actually didn't rise. Much of the rise actually occurred 11:50-12:20 PM CST, which was only early in the Euro run though there were some more rises during the latter part of the run, too. I wouldn't go any further than saying the 12Z GEFS and Euro were supportive of a rise as opposed to saying NG definitely rose only because of those models. And keep in mind that the market is always composed of traders with numerous different opinions.
Different opinions among us make these discussions interesting and reflects on the fact that trading on wx successfully is much easier said than done as there is no black and white direction a lot of times. I mean 5 different folks who want to trade on wx could easily have 5 different opinions on what to do, if anything. For one thing, there are often models that disagree. Another thing is trying to figure out what is dialed in. But it needs to be challenging because if it were easy more would do it and there'd be less reward potential.
Anyway, I feel and have felt that we have some of the most best quality robust discussions of fundamentals of any commodity, especially NG.
You make my natural gas and weather posting worthwhile and enhance the value to others and me with your contributions.
I'm sure that you also noted the Euro ensembles coming out colder in week 2, like the GFS ensembles.
Another factor is the expiring March contract this week. Look how much bigger the gains are in the front month compared to April today........wow!
The front month will always react stronger with big ups and downs but its really exaggerated with todays up.
Probably a great deal of the shorts that have been pressing the downside the last couple of months are having to cover here(buying before expiration to get flat the March contract).
Also, as I mentioned last night "If we can get the late week 2 pattern to not warm up, we should be able to add to the gains."
That's not exactly what happened late this morning/early this afternoon. The 12z Canadian ensembles and European ensembles look colder late in week 2 to me.
The GFS ENS are colder earlier than that, then are not clear late in week 2. The operational is also colder but turns very mild late week 2..................I think this was why the market was hesitant to go much higher initially as they come out earlier.
Also, if this were 10 years ago, you wouldn't be having such high expectations for the price change today. It's only by recent standards where the market OVER reacts to changes in the forecast, that we are conditioned to expect some market gusto when big changes occur.
And the same changes 2 months ago would have quadrupled the pop with low storage and most of the Winter still ahead.
The April NG did not follow the Winter months when they spiked higher in Nov/Dec on the cold..........getting close to $5 on the Jan and Feb.
April only just barely got above $3, with expectations of supplies gushing in by then as HDD's dwindle.
I note that this rally, with today marking the highest price since the last day in January, is testing a down trending line going back to December.
This is a key location technically.
We also have the double bottom low, just below $2.6 earlier this month and at the lows in early Jan.
This bounce is fairly decent since the lows so there is some downside risk again if cold starts getting taken out.
Closing comments from Natural Gas Intelligence:
After some fluctuations in last week’s weather data, outlooks turned decidedly colder during the past weekend and then built on that momentum Monday, resulting in strong gains for natural gas futures. The Nymex March gas futures contract settled 11.9 cents higher at $2.836/MMBtu, and April climbed 7.6 cents to $2.815
Expectations are for this Thursday's weekly EIA nat-gas inventories to fall by -169 bcf in the week ended Feb 22, a bigger draw than the 5-year average of -104 bcf. Nat-gas prices have carry-over support from last Thursday's weekly EIA nat-gas inventories of -177 bcf in the week of Feb 15, a larger decline than expectations of -169 and larger than the 5-year average decline of -148 bcf for this time of year. Monday's data showed that U.S. lower-48 state nat-gas production was 84.765 bcf, up +8.9% y/y............that's pretty bearish longer term.
Well, this morning I decided to jump into futures options for the first time. I sold a 16 delta call in NG and collected $190 in premium. I chickened out this afternoon, not wanting to hold it overnight. Bought it back for a very small gain. But, I am no longer a futures virgin :-) .
Thanks for sharing.
Your first trade was one that I've never done in 27 years of doing this!
Natural gas futures strengthened for a fourth consecutive day at the front of the curve as frigid air was set to bring in one of the coldest starts to March in U.S. history. Intensifying cold in some of the recent weather data helped send the Nymex March gas futures contract rolling off the board Tuesday at $2.855, up 1.9 cents. April, which becomes the new prompt month on Wednesday, settled 1.9 cents lower at $2.796.
metmike: Most of the 12z guidance was MUCH warmer. The operational Euro was only a bit milder but the warmth kicks into high gear in week 2 and it only goes out 10 days. The 6z operational GFS started the party with a much milder week 2 but the market wasn't going for it with the upward spiking March, expiring and having continued upside risk, from shorts getting out on the last day..........until the waning minutes when the bearish light at the end of the bullish tunnel starting shining brightly just before March expired.
Since then, the much milder weather models are continuing the pressure.
The latest extended NWS maps still look very cold but they are front loaded with cold and based on guidance, that since then has turned much milder in the 8-14 day period.
For the rest of the week, the 8-14 day outlooks should especially get warmer but also the 6-10 day outlooks.
From Wednesday morning:
Commodity Weather Group said much colder-than-normal temperatures are on track to make the first week of March the second coldest week of this winter and the coldest first seven days of March since 1960. Radiant Solutions forecasts a cold weather pattern for much of the U.S. during Mar 2-6, with the deepest chill in the Midwest. Accuweather projects the low in Chicago on March 2 will be zero degrees Fahrenheit (-18 degrees Celsius), 26 degrees below normal. U.S. nat-gas supplies have already shrunk as nat-gas stockpiles on Feb 15 stood at an 8-3/4 month low of 1.705 tcf, down -3.1% y/y and -17.5% below the 5-year average. In addition, expectations are for Thursday's weekly EIA nat-gas inventories to fall by -177 bcf in the week ended Feb 22, a much bigger draw than the 5-year average of -104 bcf.
Well, I did it again. I sold the April 25th $3.070 call. Collected $200 in premium. It is not going my way right now :-). But I like the trend the models are showing towards the end of March, especially in the northeast. Ensembles are locking in the cold across the middle of the country for the next two weeks however. Might make my position a loser for a while until we get closer to the end of March. Worried what happens if the draw is bigger than expected tomorrow.
The EIA report almost always features some sort of a spike up or down for a brief period. The previous one was a bullish surprise but I can't even guess on what tomorrows will be.
Maybe the market will be less surprised this time if the number comes in higher than expected. It's usually pretty hard to get natural gas prices to go lower at this time of year, especially when they are already so low.
But you just don't want them to go MUCH higher and will be ok.
I agree with you on the likelihood of a big warm up, starting in around 10 days that could define the rest of March.
Some record cold hits before then but its the same cold that the market has been trading since Sunday Night basically(when we gapped higher on the open).
That gap got filled very early Wednesday morning, which is a gap and crap formation on the charts. This is often a sign of an exhaustion of a move in the direction of the gap but in this case, ng is just being volatile and unpredictable with a week of major, almost record cold coming up, starting at the end of this week....... battling with the warm up afterwards, strong seasonals, a potential bottom, low prices, supplies much greater than last year(but storage lower) and an EIA report tomorrow morning expected to show a stout drawdown for this time of year.
NGI end of day comments:
Wednesday was another choppy day for natural gas futures, as traders didn’t quite know what to make of the latest weather outlooks for early March and what may be another supportive storage Energy Information Administration storage report. After spending much of the day in negative territory, the Nymex April gas futures contract settled its first day in the prompt-month position at $2.799, up three-tenths of a cent. Similar minute gains were seen through 2020.
Hopefully it will stay below $3.070. If not you live and learn. Learning a lot from you folks!
Like Mike, I’m thinking a stout warmup is likely to commence by the time we get toward 3/10. Now will it actually be mild in the NE in late March? That’s well beyond the period that models can predict with any accuracy. In general, once past week 2, forecasting skills go down sharply to the point of not being much better than a coin flip. Four weeks away is an eternity.
As Mike mentioned, storage is quite low vs past averages. Thanks to the current and extreme oncoming cold that is incredibly enough significantly colder than an average mid January week, the already low storage is going to go much lower. If the last half of March isn’t mild, we could be threatening to go below 1,000 bcf!
Storage is currently at 1,705 bcf vs the 5 year average of 2,067 bcf.........so - 363 vs the 5 year average.
Last year was 1,778 bcf so we are just -72 vs 2018(after being -600 vs the previous year as recently as around early December.
For us to get below 1,000 bcf would require the rest of March into early April being record cold.......similar to last year.
We would have to take over 700 bcf out of storage, including tomorrows drawdown. This would be incredibly difficult considering that supplies are something like +7 bcf/day more than last year.
Tomorrows drawdown, I read is expected to be around -177(I'm guessing a bit less than that).
I haven't tried to calculate what next week's(3-8) might be which is based on this weeks temps...........which spent a great deal of time being mild in the East and especially the south.......maybe -110??
The one for 3-15 will be massive for March because of widespread record cold in some high population areas. Do you think -250 bcf is enough Larry? That would be even a bit more than the biggest drawdown that we had in January.
That's something like -537 over the next 3 weeks.
Last years record cold end resulted in -165 bcf total for the weeks after March 15th, which would take us thru April 19th(when we are normally having injections).
Adding those together, would give us -702 and ending storage of -1,003 bcf just off the top of my head. This would be with record cold continuing thru March into early April and defines the most extremely bullish scenario possible.........assuming the weather models right now are completely wrong about the warm up after day 10 and instead, the near record cold continues for another month after that.
I don’t think we’d necessarily need near record cold continuing through the rest of March to get down to 1,000 because I’m estimating it will be down to the 1150-1175 range as of 3/8 with still 3 more March weeks afterward. I don’t think it would take record cold to have a 150-175 draw for those 3 weeks though admittedly it would take a pretty cold US to achieve that.
Thanks guys. Keep the information flowing. Lots of knowledge between you guys. One question. Do you have a go to site for HDD and CDD? I can do it mathematically but it would be easier to see it graphically for set climate zones.
Check this out:
With the market turning its attention to a potentially supportive weekly natural gas storage report from the Energy Information Administration (EIA), Nymex futures were trading slightly higher early Thursday. The April contract was up 3.1 cents to $2.830/MMBtu just after 8:30 a.m. ET.
NGI closing comments Thursday:
Natural gas futures continued to trade mostly sideways Thursday as much of the expected cold that was forecast to arrive this weekend has likely already been priced...
My position improved a little today after the report, but not much. I imagine next week the draw will be less followed by a big draw in two weeks. I'll hold steady for a while.
Thanks Grant. That makes sense about the value of the puts going down after the great uncertainty and potential volatility of the EIA report is behind us.
It really is hard to make NG go lower this time of year because of strong seasonals and low prices and the charts showing a major low.........with very low prices already.
Because of the huge change to much milder weather coming up in week 2, if this were Dec or Jan or early Feb even, there would be high confidence for there to be heavy selling pressure but the big entities, aggressively selling ng during much of Winter because of warm weather usually know there is not enough time left in the heating season, when its March for warm weather to make a huge difference(like warm weather in January).
The HDD departure from normal in Mar/Apr, with warm weather is just not there like it was in January.
That said, I wouldn't want to be long if we have widespread above temps during the 2nd half of March.
From NGI Friday early:
It's interesting that yesterday, we heard that the market had dialed in this upcoming cold and thats why we stalled but today, we are making new highs for the move with the same forecast..........extreme cold for March next week, followed by much milder as far as we go out after that.
My take is that actually the warm up was dialed in earlier this week when it showed up and caused us to spike down and fill the bullish gap higher. The market KNOWS its going to warm up and is trading on that assumption which means its dialed in......at least thats how it acting.
What will be the mentality of traders on Sunday Night with a blast of record cold just arriving with gusto, IF the very mild extended maps would change to colder?
Likely a gap higher. So that is the risk we are dealing with, I think with today's trade. It's looks very unlikely that the forecast will shift to being cold in the 2nd half of March to me though.
Just my thoughts at the moment.
We are also breaking out of a downtrend line today with this move. However, this is ng and upside breakouts turning into upside fake outs happens alot.
My position continues to go against me. My plan is to see if a week or so with premium decay can bring me back to even or a slight winner. If not I'll just take the loss. I still have 0.22 or so of room. Thanks for all the information guys!
Thanks again grant. I was tempted to short several times today but the market clearly was not going lower ahead of this cold next week.
I believe it would have gone lower if this were 2 months ago and at the prices we traded then, with the same forecast. It really is hard to get ng to go lower in March and April.
Some of this is sort of a self fulfilling prophesy thing involving Seasonals that long term traders use. People that have traded ng for 2 decades or just look at historical price charts, know that ng has gone up in something like 9 out of 10 years during this 2 month period.
Knowing this, they lean heavily towards the long side because the historical odds display such a profound tendency in that direction. Even in years that might not justify strength, it's the markets mentality that matters.
For instance, when we say that we are trading the weather in natural gas, the fact is that we are not trading actual weather because we are really trading the markets reaction to the weather forecasts. The perception or expectation of the future weather well before the actual weather happens.
For instance, if the market thinks that we are going to have record cold or weather colder than the previous day during a key time frame in January.....the price goes higher, mainly because a bunch of weather models convinced everybody that uses them of the same thing and they all acted accordingly because of the same expectations......and prices go up. Even if the models end up being wrong, on that day, everybody believed they were right.
On strong Seasonals, you will also have a lot of traders that believe prices are likely to go higher in March/April because they have done this in 9 out of 10 years. They are letting the historical price charts influence expectations.....for higher prices. Enough traders thinking that way creates a self fulfilling dynamic which actually causes prices to go higher and creates an additional positive feedback of another year when prices during these 2 months were stronger than one would have expected considering everything else.
The market, then remembers this as another year when prices went higher than what the other changing fundamentals at the time suggested.
No change in fundamentals or weather but prices go higher anyway.
Bearish changes and prices still end up going higher.
Bullish changes and prices go even higher than expected or have less selling resistance than expected.
This is why I posted the ng seasonal price chart the past 2 weeks to show this powerful historical tendency for ng to go higher at this time of year.
However, weather, even though it counts less and less and is not always the most important trading factor every day by the time we get into mid-Feb onwards, as it was in January can still count when it's extreme.
If the 2nd half of March features the likely huge warm up and we have some early season injections, especially considering last year featured a bunch of record late heating season drawdowns, resulting in us quickly catching up to last year......it should be too powerful and too bearish for the market to ignore.
At some point it should cause a big surge in selling but one has to pick your spots to sell very carefully when Seasonals are strongly up. Timing is different than January.
If things remain unchanged, I will be looking to sell from the get go on Sunday night, assuming that the warm weather will be getting closer and closer and extending an extra day at the end of each updated extended forecast next week.
Those that sold this week, when the market was trading its bullish seasonal bias ahead of strong cold may have just been early.
Of course the weather can change and look much colder next week in the extended period.
Interesting about the seasonals. To add, the deficit vs last year and vs 5 years ago is fcasted to widen sharply over the next 3 weeks. Also, the realistic possibility of storage getting close to 1000 is likely keeping sellers at bay for now.
I would have waited to put on my position if I would have looked closer at the seasonal chart. With that said, I feel OK still on my position. The air mass moving into the midwest will be very cold, but it looks as though it will not be as cold as advertised 5 days ago. I have raised our low temperatures in my DMA.
12Z Sun EPS vs 12Z/0Z Fri EPS for 3/4-15: HDD losses of 14/15
12Z Sun GEFS vs 12Z/0Z GEFS for 3/4-16: HDD losses of 12/18
Hindsight(like mine on Friday) is always 20-20 and in some situations not that much different than this one, if you had waited, you would have missed it.
When we closed the gap higher earlier in the week from the milder looking extended maps, I didn't think we could make new highs for the week, while still keeping the milder look to the extended maps.........but we did.
I'm just glad to not have lost money being short because that was what the weather was telling me the next trade should be..............and sometimes, its impossible to time it...........very often being early but if you can hang on and are right, then you get paid.
If you are late however, you often jump in after everybody else knows and sometimes end up having to risk/lose even more if you end up wrong.
My guess is that we'll open lower and you'll be in great shape pretty quickly but some of the latest guidance is trying to make it a bit colder late in week 2. Just something to watch the next couple of days.
Maybe a big factor is just getting this current record cold wave out of the way.