Source: CommodityWxGroup

Interestingly enough, despite the very bearish heating demand projections, US natural gas storage is expected to remain around the 5-year average going forward due to tight supply and demand balances.

Editor’s Note: Free subscribers can use the 1-time unlock feature to read this piece.

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Murphy’s Law: Anything that can go wrong, will go wrong.

Isn’t that the truth in natural gas trading?

One of the assumptions going into March was that heating demand would at least be better than in 2025.

Source: Commodity Wx Group

Well, sorry for asking for too much. March’s projected heating demand is expected to be lower than in 2025. It is now the 3rd lowest heating demand (March) since 2000.

But thanks to better fundamentals, natural gas storage did finish near the 5-year average.

Readers should expect this week’s EIA natural gas storage report to show an injection of ~39 Bcf.

We are projecting November 2026 EOS at 3.8 Tcf, which is slightly above the 5-year average of 3.788 Tcf. If you are wondering why natural gas prices aren’t trading higher, then look no further than this storage projection.

On the fundamental front, we have officially seen the peak in heating demand for this winter. Even if April turns out colder-than-normal, we will not see heating demand get anywhere near the highs we saw in January.

Overall, this winter’s heating demand was slightly below the 10-year average. We managed to reduce the surplus we had at the beginning of this winter back to the norm. Thankfully, a lot of the fundamental forces that drove the tightening will remain favorable for the injection season.

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• Sanctioned oil-on-water

• Global SPR release

• Excess onshore oil inventories

For the oil market, the cushion runs out by the end of March, so chaos will ensue if tanker flows don’t return to normal by then.

But for the global natural gas market, Qatar’s outage will have a profound effect on everything from electricity to economic growth to heating. Qatar accounts for ~20% of global LNG supply, so every day it is not supplying the world, that’s 20% less LNG available. There’s no SPR to supplement Qatar. The only way out of this, eventually, is through demand destruction similar to the events we saw in 2022.

Structural Implications

Immediately after the Iranian conflict started, we wrote a piece titled, “A Fascinating Situation Is Unfolding In Natural Gas.” In it, we specifically detailed the geopolitical ramifications of the force majeure announced by Qatar:

But the geopolitical conflicts that unfolded over the weekend changed all that. In particular, the most notable event was Qatar announcing force majeure on its LNG gas exports. Qatar is the 3rd largest LNG exporter in the world. Most of its contracts are long-term. Qatar exported ~90% of its LNG capacity to Asia.

With LNG tanker rates spiking amidst the geopolitical turmoil, US LNG gas exports suddenly become the most attractive place to lock in long-term commitments.

Take a stepback and think about this for a moment. Elevated geopolitical conflicts in the Middle East have just demonstrated how vulnerable LNG flows can be. And since natural gas is a time-sensitive commodity (needed during the winter heating demand season), having an adequate supply on time is vital for the buyers.

Everyone in the industry expected the global LNG market to be in surplus through 2030. Here was Shell’s 2025 LNG outlook:

As you can see, the demand forecast range varies as it depends on 1) weather, 2) price, and 3) adoption rate. Assuming everything goes perfectly, demand outpaces supplies by 2030. But if any of the steps meet a hurdle, we could see the global LNG market tip into a surplus, which would pressure prices.

Now, couple this outlook with the current anticipated LNG export demand increase in the US, and you can draw an interesting conclusion. Supply uncertainty in the Middle East will prompt buyers to want to lock in long-term contracts with US LNG exporters.

Source: S&P

This insight was first brought to us by Dr. Anas Alhajji, whom we thank greatly for sharing this unique and differentiated take.

Between 2027 to 2030, only 68% of the incoming LNG facility buildout is contracted.

The increasing instability in the Middle East, especially if the conflicts are prolonged, will be very beneficial for US natural gas producers and exporters. The US is already the largest LNG exporter by far. US shale gas producers have some of the best economics in the industry. Not to mention that Permian, the key US shale oil region, is selling natural gas today below $0/MMBtu.

In our view, the Qatar force majeure will have altered the global LNG landscape for the years to come.

A major macro narrative heading into 2026 was that the global LNG market would be in surplus by 2027. New capacity increases from both the US and Qatar will push the market into a surplus, creating pricing pressure and potentially preventing new US LNG facilities from securing funding.

With each passing day that the Strait of Hormuz remains closed, the long-term structural implications grow stronger. The US is now the safest and most secure place to lock in long-term LNG commitments. Not only are US LNG exports price-competitive, but the geopolitical landscape has all but ensured that this structural tailwind will continue for years to come.

To put it bluntly, we have never ever seen a disruption of this scale or duration. For most energy analysts, the closing of the Strait of Hormuz was always a tail risk, but never a real risk. It’s never happened, so how can you account for that?

Well, it’s happening, and this will change how utilities and LNG buyers think about future contracts for years.

What are the investment implications?

Read more

Trade Background

The market believes, rightly or wrongly, that the US natural gas market will be adequately supplied this year. The winter heating demand season is coming to a close, natural gas storage will finish near the 5-year average, and November natural gas storage is headed for 3.974 Tcf.

Source: ICE

The consensus believes that:

• The structural demand from LNG/Mexico is already in the balance. No surprise on the demand side until 2027.

• Lower 48 gas production will move higher with additional takeaway capacity coming online from the Permian. Higher rig counts in Haynesville should support supply growth.

• Higher renewable capacity increase this year will foreshadow the same power burn decrease we saw (for natural gas) in 2025. If natural gas prices are elevated this summer, more gas-to-coal switching will displace more power burn demand.

• In 2027, the global LNG market will be in a glut with additional capacity coming online from Qatar pressuring US exports.

These factors will pressure natural gas prices. This is one of the main reasons why we aren’t seeing much higher prices today.

But the geopolitical conflicts that unfolded over the weekend changed all that. In particular, the most notable event was Qatar announcing force majeure on its LNG gas exports. Qatar is the 3rd largest LNG exporter in the world. Most of its contracts are long-term. Qatar exported ~90% of its LNG capacity to Asia.

With LNG tanker rates spiking amidst the geopolitical turmoil, US LNG gas exports suddenly become the most attractive place to lock in long-term commitments.

Take a stepback and think about this for a moment. Elevated geopolitical conflicts in the Middle East have just demonstrated how vulnerable LNG flows can be. And since natural gas is a time-sensitive commodity (needed during the winter heating demand season), having an adequate supply on time is vital for the buyers.

Everyone in the industry expected the global LNG market to be in surplus through 2030. Here was Shell’s 2025 LNG outlook:

As you can see, the demand forecast range varies as it depends on 1) weather, 2) price, and 3) adoption rate. Assuming everything goes perfectly, demand outpaces supplies by 2030. But if any of the steps meet a hurdle, we could see the global LNG market tip into a surplus, which would pressure prices.

Now, couple this outlook with the current anticipated LNG export demand increase in the US, and you can draw an interesting conclusion. Supply uncertainty in the Middle East will prompt buyers to want to lock in long-term contracts with US LNG exporters.

Source: S&P

This insight was first brought to us by Dr. Anas Alhajji, whom we thank greatly for sharing this unique and differentiated take.

Between 2027 to 2030, only 68% of the incoming LNG facility buildout is contracted.

The increasing instability in the Middle East, especially if the conflicts are prolonged, will be very beneficial for US natural gas producers and exporters. The US is already the largest LNG exporter by far. US shale gas producers have some of the best economics in the industry. Not to mention that Permian, the key US shale oil region, is selling natural gas today below $0/MMBtu.

In our view, the Qatar force majeure will have altered the global LNG landscape for the years to come.

Why is this important for the trade setup?

Read more

The winter heating demand season is coming to an end soon, and US natural gas storage managed to go from a +200 Bcf surplus to neutral.

The recent weather model updates have been extremely volatile with ECMWF-EPS showing a spike in heating demand over the weekend only to see the models lose ~30 gas-weighted HDDs in the last 24 hours.

From a storage standpoint, the next few weeks are expected to be uneventful... for now.

The current weather projections show a warmer-than-normal first half to March.

6-10 Day

10-15 Day

Is there a scenario where prolonged colder-than-normal weather after March could push natural gas prices higher?

Yes, but only to an extent. Unlike the cold blast we saw at the end of January, any cold event will only delay the injection season as opposed to meaningfully reducing storage.

Using EIA’s storage data going back to 2010, here are the largest withdrawals in April:

(Thanks Claude!)

And here are the figures for March:

As you can see, the largest storage withdrawals in March usually occurred in the first week. With the latest forecast showing that as an unlikely event, the most bullish outcome, assuming a cold shift in mid-March and prolonged cold in April, is for storage to move down to ~1.65 Tcf.

But as we noted in our natural gas updates last week, we believe natural gas prices today are undervalued, especially considering the following facts:

• Lower 48 gas production growth will be muted through Q3 2026 due to limited takeaway capacity in both the Permian and Northeast.

• Natural gas fundamental balance is tighter in 2026 vs 2025. Total gas exports are higher and support higher Lower 48 gas production.

• A normal summer this year would push natural gas storage by November down to ~3.65 Tcf.

As a result, the curve is undervalued today relative to where fundamentals are headed.

Source: CME

Let’s look at some of the main drivers for the natural gas market in 2026.

2026 Fundamentals

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But as with anything during winter gas trading, prices will follow the ebbs and flows of the weather model updates. However, readers should be aware of the fundamental dynamic and where the “fair” value is.

With the prompt month hovering around $3.07/MMBtu and April and May contracts trading below $3/MMBtu, we think the market has priced in most of the downside. In 2025, the low we saw during the shoulder season was $2.8/MMBtu, and comparatively speaking, fundamental balances are tighter this year vs H1 2025.

Lower 48 natural gas production has recovered to ~109.6 Bcf/d over the weekend. Despite the production recovery, the drop in Canadian gas net imports kept total gas supplies flat.

And thanks to the structurally higher LNG + Mexico gas exports, net gas supplies are still down ~1.5 Bcf/d y-o-y.

Net Gas Supplies

Looking at our projections, our natural gas storage forecast has early April storage at 1.732 Tcf.

Bearish weather model revisions over the weekend increased our EOS by ~75 Bcf.

By November 2026, we have natural gas storage recovering back to ~3.8 Tcf or in line with the 5-year average.

This is why it’s extremely important when investing/trading in natural gas to understand the fundamental backdrop. In order to get a clear picture of where we are headed, we must first understand whether the market this year will be oversupplied or undersupplied. From there, we gauge the general direction of where we are headed.

With that, let’s look at some differences between 2025 and 2026.

2026 vs 2025

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• Natural gas prices relative to storage are low. The market has already discounted the lack of cold risk into the price.

• Weather models will have a lot of variability in the coming days, and with the market already positioned on one side (bear side), we thought the risk/reward would be favorable.

Here are my latest thoughts on natural gas.

The Weather

Currently, the outlook is not favorable for the bulls. The current 15-day forecast shows warmer-than-normal weather on the horizon. The infamous Alaska trough (blue in Alaska) makes a return, which usually foreshadows warmer-than-normal weather.

To make matters worse, ECMWF-EPS long-range outlook suggests that there’s no cold risk until mid-March.

15-22 Day

Source: Weatherbell.com

22-29 Day

Source: Weatherbell.com

It’s important to keep in mind that ECMWF-EPS weekly has the tendency to flip on a dime.

In this case, the Alaska pattern is the most important variable to watch as any subtle changes there could have a material impact on the heating demand forecast.

Source: Weatherbell.com

The Eastern Pacific Oscillation, or EPO, needs to trend negative to signal the return of the Alaska ridge (red in Alaska). As you can see in the teleconnection chart above, the variability remains wide amongst the 101 ensemble members. The mean has been trending higher, and we have not seen any meaningful loss in heating degree days. This is a good sign, but it’s not a signal the bulls want to see lasting any longer.

The other teleconnection signals are more mixed.

Source: Weatherbell.com

The Arctic Oscillation is also showing a lot of variability with the ensemble members showing a gradual negative trend. If AO remains negative, this is good news for the bulls.

Source: Weatherbell.com

Last but not least, the infamous Southeast ridge or the Pacific North American Oscillation remains negative, which is bearish. As we’ve explained in the past, PNA has been a key source in killing bullish weather patterns in the past, and this time is no different. While the range is wide towards the backend of the model, the negative trend remains a headwind.

Based purely on reading the weather maps, I fear that our long trade in natural gas was premature.

What about fundamentals?

This is where it gets a bit conflicting.

Read more

With winter heating demand coming to an end soon, the lack of a bullish surprise on the cold front equals “sell first and ask questions later.” One of the key things to understand for winter gas trading is that the market doesn’t care about whether the price is “fairly” valued or not; it only cares about the direction of where the weather models are headed. And as we wrote in our natural gas update last week:

Purely from reading the weather maps, I can tell you that buying the dip is way too early. I don’t see any bull signals that can rapidly flip the narrative (warmer trend) around in the near-term. As we explained in the fundamental section, if the market believes storage is headed for 1.9 Tcf, then natural gas prices are headed for $3/MMBtu. I don’t think it makes sense to fight the market here, especially given how sensitive everyone will be on how weather models develop.

March Henry Hub contracts are now trading near $3.2/MMBtu and this is well below the level we believe to be “fair value” especially considering that the incoming weather trend is far from being “bearish”. But in order for us to take a long position, we need to see the signals turn bullish (more on this later).

The Weather

The last ECMWF-EPS update had heating demand below the 10-year norm for the next 15-days.

6-10 Day

10-15 Day

15-Day Cluster

What you will notice in the weather charts above is that the weather trend doesn’t fall into the category of being overly bearish. The 6-10 day outlook has the potential to delay the slightly colder weather at the backend of the model, but this is far from the very bearish scenario the market appears to be pricing in.

But for the bulls to buy the dip with confidence, we need the teleconnection signals to turn bullish, and they aren’t on the bull’s side just yet.

Read more

And as with anything in winter gas trading, you have to get lucky time to time, and we were fortunate to have exited our BOIL long position on Friday. Talk about dodging a bullet on that one.

Trade alert to subscribers.

X post.

In this article, I will explain everything that unfolded over the weekend, why natural gas prices are down, and where we are headed.

Fundamental Development

Cumulatively, ECMWF-EPS lost ~33 gas-weighted heating degree days over the weekend. On an implied storage basis, this reduced heating demand by ~200 Bcf.

April natural gas storage has been revised up to 1.662 Tcf.

So why are March Henry Hub contracts down ~25% today?

The natural gas market is extremely sensitive to the changes in storage projections by April. The difference between ~1.9 Tcf and ~1.66 Tcf is the difference between $3/MMBtu and $4.5/MMBtu.

In our base case storage analysis, we have 1.662 Tcf, but that assumes normalized weather after the 2/20 week.

If the weather remains warmer than normal for the rest of the withdrawal season, EOS increases to ~1.9 Tcf.

This is the dynamic we are entering now. The weather developments over the next 6-8 weeks can still meaningfully impact where we are headed.

What about the weather?

As we wrote last week, bearish signals were developing in the backend of the forecast. The Pacific North Oscillation (or PNA) started to trend negative, which usually signals the Southeast ridge, a very bearish weather pattern during the winter.

Thankfully, I’ve made past mistakes where I thought the PNA signal was not enough to overwhelm both the Arctic Oscillation (Arctic air) and Eastern Pacific Oscillation (Alaska pattern). The Southeast ridge ended up winning and this time appears to be no different.

Source: Weatherbell.com

To further add to the bear signals, the Alaska pattern also appears to be shifting to a trough, which usually signals a warmer-than-normal outlook.

In essence, the teleconnection signals, with the exception of the North Atlantic Oscillation, are all pointing to the bear side.

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Natural gas prices continue to exhibit wild swings day to day. Part of the market remains reluctant to price in the extreme cold we are seeing. I don’t know whether that’s due to the fact that it believes the cold is transitory or because of the massive move in the prompt month (February), but traders have fixated on dealing with the physical realities first before pivoting their attention to March and the rest of the 2026 curve.

Regardless of the reasoning, February contracts are expiring on Jan 28, and the violent prompt month moves are coming to an end. Market participants can finally focus on 1) the end of withdrawal inventory and 2) whether we can refill the gas in storage.

From a storage standpoint, this is where we stand today.

Elevated heating demand is expected until Feb 1. Implied storage withdrawal this week has averaged over ~60 Bcf over the last 4 days. Projected deficit for 1/28 and 1/29 is around ~116 Bcf, which would put the total withdrawal for 1/30 week past -400 Bcf. This would set a record.

Due to the size of the withdrawal, models can easily underestimate or overestimate. Considering that we’ve seen peak production freeze-off estimates at ~18 Bcf/d while our model shows only ~10 Bcf/d, we could be on the conservative side at -390 Bcf.

Either way, natural gas storage is expected to fall to 1.74 Tcf by Feb 20th. Interestingly enough, traders are expecting ~1.79 Tcf for the end of the withdrawal season.

Source: ICE

That seems way too pessimistic, and we think that has largely contributed to the muted moves we’ve seen along the curve.

By our estimate, if heating demand just stays modestly above the 10-year norm for the 2nd half of February, our storage estimate of ~1.466 Tcf will likely come to fruition.

This will put April natural gas storage near the 2022 lows.

On the contrary, if heating demand is below the 10-year average, then April will come in near ~1.6 Tcf.

But here’s the kicker: both scenarios bring up the issue of the injection season.

Read more

For most people trading natural gas, it would be suicidal to trade the February contracts as the expiry this Wednesday (Jan 28) will likely be one for the record books. Henry Hub cash averaged $28.565/MMBtu over the weekend, and with the cold expected to last until January 30, how the February contracts expire with cash so elevated will be something to watch.

For this article, we are not discussing what will happen to February contracts. Instead, we will focus our view on March and the rest of 2026.

Fundamentals, Where Are We?

Some highlights from this weekend:

• Lower 48 production dropped to ~99.4 Bcf/d.

• LNG gas exports dropped ~5 Bcf/d.

• Net gas supplies are flat due to the significant jump in Canadian gas net imports.

Total Gas Supplies

Net Gas Supplies

• Total gas demand was just shy of the record we saw in 2025, but elevated demand will keep gas withdrawal elevated.

• Our storage withdrawal estimate puts the Jan 30 week at a record-breaking 385 Bcf.

• Our EOS forecast shows 1.431 Tcf.

With these fundamental developments, where does that put the fair value?

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Based on the current projected heating degree days, we are forecasting US natural gas storage to be ~2.01 Tcf by Feb 13 week.

If you were to use the 5-year average storage withdrawal from 2/13 to 4/3 week, you would get a total withdrawal of 349 Bcf. This would put US natural gas storage at 1.661 Tcf. As I will explain below, not only is this not currently priced in, but I also think the market is not pricing in the potential for longer cold risk.

Explanation

Winter natural gas trading is extremely volatile because any sustained cold or sustained warm weather can push storage levels to extremes.

Luckily for the bulls, the bullish jump in heating degree days has catalyzed the market, but the upside doesn’t usually get priced in all at once.

The market can’t be that efficient because, for starters, anyone who bought natural gas last week is looking at the price jump and thinking they should immediately take profits. There are also other commercial reasons why prices don’t usually reflect the “fair value” right away. Then, to top it all off, it’s the weather we are talking about, so even in the face of a materially bullish change, traders will remain skeptical, wary of more weather model volatility ahead.

Fundamentally, the weather changes over the weekend materially changed the trajectory. As we wrote in our earlier natural gas update, the heating demand changes increased projected withdrawals by at least 220 Bcf. But with higher certainty of the incoming cold, we have published the latest storage projections:

Relative to the 5-year average, the next 5 natural gas storage reports will be 356 Bcf higher. We are projecting -340 Bcf for the 1/30 week as this will capture the entirety of the “cold blast” we see in the 15-day forecast.

Looking at it from a supply & demand standpoint, total gas demand will hit an all-time high on January 24.

Gas-weighted heating demand will be ~33% higher than today’s reading, and total gas demand has already eclipsed ~160 Bcf/d. This will be very unprecedented. I don’t think people are going to be able to model this correctly (including us).

Taking this uncertainty into account, there’s a better than 50% chance that our withdrawal estimate of 340 Bcf is likely to be on the lower end.

But as you can see in the latest ECMWF-EPS TDD chart, persistently high heating demand is projected after January 23. This trend continues into February where the latest ECMWF-EPS long-range shows persistently colder weather as well.

If such a scenario materializes, this is what our storage projections look like:

Read more

What caused this manic depressant like move?

And here’s the latest ECMWF-EPS TDD chart:

According to the latest update, ECMWF-EPS gained some ~43 HDDs since last Friday. In terms of natural gas storage, the gains in heating demand increased storage withdrawals by ~200 Bcf. By our estimate, if the bullish weather were to materialize, then we would need to see heating degree days ramp further.

So if you are wondering why natural gas prices aren’t moving higher just yet, it’s for that very reason. The market is still waiting for the patterns to translate to heating demand, so until then, we are all just waiting patiently while the yo-yo is playing out.

Weather: that’s winter natural gas trading in a nutshell...

Trust me, I don’t like talking about the weather. Natural gas fundamentals should, in theory, dominate, but because heating demand is such a large part of the demand mix, not talking about weather is like not talking about the score in sports. At the end of the day, how much heating demand materializes is how much natural gas prices will move up or down.

In the case of the current set-up, the bulls can rejoice, but we aren’t completely out of the woods yet. From everything I’m seeing, there’s still a lot of variability in the forecast.

Let’s start with the bullish variables.

Teleconnection: Arctic Oscillation

The Arctic Oscillation is trending negative, which is usually a very bullish signal. Here’s the perfect chart to illustrate this:

In the above chart, you can see that negative AO translates to the cold being pushed to the Lower 48 (b chart).

This teleconnection signal needs to be paired with other signals.

Teleconnection: Eastern Pacific Oscillation

EPO is the famous Alaska pattern. When EPO is negative (like the chart above), it foreshadows colder-than-normal weather in the Lower 48.

Source: DTN

Inversely, a positive EPO foreshadows bearish weather. And as you can see in the teleconnection chart above, the back-end of the models gradually trends back to neutral. The key is for the Alaska ridge (negative EPO) to remain in place throughout the 15-day forecast. The longer this pattern persists, the more bullish the outcome; conversely, the same is also true.

Now for the bearish signals.

ECMWF-EPS weekly forecast

15-22 Day

22-29 Day

The two long-range weather model maps illustrate what happens if the Alaska ridge disappears. As you can see, the cold escapes North and Lower 48 is blasted with warmer-than-normal weather.

This forecast is one of the key reasons why you aren’t seeing natural gas bulls jump for joy just yet. The models are basically at polar extremes right now. On one end, if the Alaska ridge holds, then we are looking at 2-3 weeks of bullish weather. Inversely, if the Alaska ridge disappears, then we are back to warmer-than-normal weather.

From a fundamental perspective, we will have to dive into both scenarios to see what happens to natural gas storage.

Implications on Fundamentals

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Fundamentally, the market punished prices lower because the bearish heating demand revisions (for the first 2 weeks of January) resulted in storage changes of ~300 Bcf.

Our current storage projection shows ~1.85 Tcf by April, assuming normal weather. If the February weather outlook remains bearish, then we could see EOS climb above ~2 Tcf. At that storage level, April and May natural gas contracts have more room to the downside from $2.893 and $2.974 to sub-$2.5.

On the contrary, if February doesn’t turn out to be warmer than normal, and neutral weather is in the mix, then April and May contracts have upside back to $3.5/MMBtu.

Either way, the calculus for a bullish bet on natural gas going forward is simple: Is the winter over? Yes or no.

What does the weather look like?

To better explain the sell-off, we must first go back to Dec 29 and look at what the market was projecting at the time.

Dec 29 ECMWF-EPS TDD Chart

Dec 29 15-Day Cluster

Now what you will notice is that bearish weather was expected from Jan 1 to Jan 12 with the 15-day showing a bullish pattern returning.

Fast forwarding to today, this is what ended up developing:

Jan 6 ECMWF-EPS TDD Chart

6-10 Day

10-15 Day

15-Day

What you will notice from today’s update is that the “warmer-than-normal” weather is expected to drag on another 7-8 days. The natural gas market really doesn’t like that since we are in the “heart” of the winter heating demand season.

While many of the bullish signals remain in place, Alaska ridge, Greenland ridge, etc, the market will undoubtedly question the incoming forecast as just another delay. To add to the uncertainty, the cold blast has shifted more West (lower demand regions), and the Southeast is projected to be warmer-than-normal. The combination of everything is what prompted the market to sell off so much.

Now many of you may have noticed that we published a trade alert yesterday going long BOIL at $18.88. The rationale behind going long as today’s price is that we believe 1) winter heating demand is not over and 2) the market has more than pushed prices to their extremes. We are keeping a tighter stop-loss in place in the event of persistently bearish weather, but readers must keep in mind that the 15-day range does show “signs” of bullish weather.

In addition, from a fundamental perspective, sub-$3/MMBtu natural gas will dampen production growth, which will push natural gas prices higher down the road. Putting this fundamental backdrop in the context of elevated structural export demand and we think the sell-off is overdone.

Read more

Readers must keep in mind that there’s a lot of volatility in the weather models, but this pattern sets up an attractive risk/reward for those contemplating a long position here.

In Winter natural gas trading, the classic “bull” pattern is when there’s widespread ridging (yellow to red) across Alaska to Greenland. You can see this develop in the chart above. Such a pattern usually foreshadows much colder-than-normal weather in the Lower 48.

Weather forecasters on X like Commodity Wx Group are seeing historical analogs that would send heating demand through the roof.

Source: Commodity Wx Group

Again, this is not our base case view. The above pattern would equate to back-to-back weeks of 350+ Bcf gas withdrawals. Such a scenario is so bullish that you shouldn’t think about it in fear of reverse-jinxing yourself.

Nonetheless, what we are referring to is the attractive asymmetry that’s in the market today. The natural gas market sold off both February contracts and March contracts to a price point that suggests most of the bullish heating demand calculus is off the table. So for the long trade to pay off, you don’t need an extreme cold event, you just need a weather outlook that resembles that of a normal winter heating demand season.

Why aren’t prices higher if what we are saying is available to all traders?

That’s because in the latest weather forecast, heating degree day forecasts remain below the 30-year norm. None of the heating demand projections is “obvious,” and this is especially true during winter gas trading.

But there comes a time when the disconnect between what we are seeing and what the market is seeing is a bit “obvious,” and this is one of those times.

Given everything we’ve said, we think it makes sense to initiate a long natural gas position today.

Fundamental Argument

Read more

In the latest ECMWF-EPS update, the big “turning point” in the weather update was 7.5 day outlook snapshot.

Source: Weatherbell.com

The ECMWF-EPS 12z (this afternoon) saw heating degree days spike by ~19. Total heating demand has increased storage withdrawal by ~180 Bcf since last Friday. Such a material increase would’ve coincided with a much stronger price response (March contracts have been flat since Dec 15, our last update). But given the pervasive market doubt still lingering, the natural gas market is in a wait-and-see mode now.

But based on everything I’m seeing now, the market might be taking the latest weather update too lightly. I will explain why:

The above is the current 15-day cluster. As you can see, the usual bearish pattern (Alaska trough) remains in place, and signals to the market that the East coast could be warmer-than-normal.

But the signal that I’m seeing, derived from the ECMWF-EPS long-range outlook, is that the latest ECMWF-EPS update materially changed the forecast for January.

15-22 Day

In the latest 15-22 day outlook, you can see that while the 15-day pattern holds, the blocking pattern for the stratospheric warming event is taking place. Such a pattern usually signals extreme cold in the US, and we see this in the 22-29 day and 29-36 day outlook:

22-29 Day

29-36 Day

Now what you will see in both charts above is that the signature blocking pattern remains in place:

• Ridge in Alaska.

• Ridge in Greenland

Again, this usually foreshadows very bullish weather, so while you can never count your chickens before they hatch, it appears we are headed there.

Read more

ECMWF-EPS 15-Day Cluster

The most important chart for the natural gas market today is the 15-day outlook. In winter gas trading, natural gas traders obsess over this chart because it tells you which way the weather is “directionally” headed. In this case, you can see the lack of an Alaska ridge and the continuation of the Alaska trough. The Alaska pattern, or also known as the Eastern Pacific Oscillation, needs to show a ridge (yellow to red) pattern as to increase the probability of colder-than-normal weather in the East.

For the moment, this is not in the forecast, and so for everyday that passes without this signal changing, the more natural gas prices will be pressured downward.

There will come a point where it’s too obvious that natural gas prices have sold off to an extreme (getting close), but in order to have confidence in “buying the dip”, we would need to see this pattern change.

Getting Technical

Now I don’t want to bore you with the technical details of reading weather model maps. But here’s the issue that’s creating a lot of uncertainty in the weather forecast:

The teleconnection chart for the Eastern Pacific Oscillation shows a lot of variability in the 10-15 day range. This is normal for the course, given how unpredictable weather forecasting is. As you can see in the green line (mean) above, the 50 ensemble member mean is showing a positive EPO pattern, which translates to the Alaska trough continuing.

So long as this signal continues to trend positive, natural gas prices will be pressured downward.

What about fundamentals?

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Jan Henry Hub contracts are down ~20% for the week, and for those tempted to buy the dip, I come with some words of caution. Unless you have a very strong view that the weather models are about to turn bullish, I suggest you exercise patience. Natural gas traders often push prices to extremes, and this is no exception.

In our Dec 1 natural gas article titled, “Here’s How I’m Looking At The Natural Gas Market.” I said that a warmer-than-normal January would bring $3.75/MMBtu into play, while a bullish outlook would bring $6/MMBtu into play.

Following this week’s weather model updates, ECMWF-EPS appears to suggest that the 6-15 day outlook will be firmly bearish.

6-10 Day

10-15 Day

And the issue I’m still seeing with the weather pattern is that the 15-day cluster continues to show no Alaska ridge and a warmer-than-normal outlook in the East.

The market, rightfully so, has sold natural gas prices to a relatively depressed value, but the issue is that if this forecast persists, we could see Jan contracts test $4/MMBtu.

Source: CME

On a side note, for those of you who are looking or are already long BOIL, the 2x levered ETF is long March 2026 contracts. For the first time in a very long time, the bi-monthly contract roll actually worked out in BOIL’s favor. As January contracts surged while March contracts lagged (relatively speaking), BOIL started selling on Monday with the final repositioning taking place today. So anyone long BOIL is actually long March, which is trading at $3.547/MMBtu.

Given the steep backwardation in the natural gas price curve, if the bearish weather projections persist, January contracts will likely continue to pull back, while the forward curve has largely priced in the bearish weather.

Where is the bottom?

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Over the weekend, ECMWF-EPS started off with an insanely bullish update showing TDD changes upwards of +16. It was then followed up with multiple bearish revisions with the 10-15 day now projected to be warmer-than-normal.

Here’s the latest ECMWF-EPS update:

6-10 Day

10-15 Day

15-Day Cluster

As you can see in the weather charts above, the 10-15 day range shows the disappearance of the “Alaska Ridge”. The technical term for this is called the Eastern Pacific Oscillation (or EPO). This is one of the few teleconnection charts the natural gas traders pay attention to. When EPO turns negative, it means that the Alaska ridge is here and the weather is likely to lean bullish. When EPO turns positive, it means that the Alaska trough (blue pattern in Alaska) is here and the weather is likely to lean bearish.

Source: Weatherbell.com

In the latest EPO teleconnection chart, you can see the -EPO pattern in the 6-10 day range, while the 10-15 day range flips to a positive pattern. The bar chart you see above is the range of forecasts from the 50 ensemble members in the ECMWF-EPS weather model.

For now, the ensemble members are projecting the return of an Alaska trough, which is ushering in bearish weather in the 10-15 day range. The bearish back-end of the model is precisely why natural gas prices are selling off.

Why aren’t prices selling off more?

The incoming weather pattern is extremely fickle. The smallest changes can lead to dramatic differences in the potential outcome. Take, for example, the Madden-Julia Oscillation or MJO forecast:

Source: Daculaweather.com (Explanation of MJO here)

Now I’m not going to get into the technical details of what MJO is, if you really want to pull your hair out, I suggest you read the explanation of MJO in the source link above.

For the purpose of simplifying life here, let me explain to you what that means for natural gas in broad terms.

In the chart above, you will notice: 1) yellow lines, 2) small numbers, and 3) blue and red line. The numbers represent the “calendar” days. For example, today is Dec 8, and tomorrow is Dec 9, etc. You can see by what date the pattern moves to what “phase”. Now you will notice that the MJO is forecasted to 12-22-2025, and the current projection for Dec 22 is in phase 7 (the boxes are labeled).

Historically speaking, MJO phase 7 equated to a bearish weather setup for December, January, and February.

While a phase 8 setup is very bullish, here’s a zoomed-in chart of the two phases:

And here’s a zoomed-in chart of the MJO:

So yes, the difference is extremely sensitive here. On one end, if MJO just shifts slightly to phase 8, the odds of a very bullish weather pattern increase, while on the other hand, if MJO stays in phase 7, the pattern is bearish.

This insanity of a weather pattern change is precisely why weather forecasting is so difficult.

What about fundamentals?

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• Lower 48 gas production reached an all-time high of ~109.5 Bcf/d over the weekend.

• LNG feedgas + Mexico gas exports are near ~27 Bcf/d.

• Net gas supplies (total supplies - structural demand increase) change y-o-y is flat. This means that at 109.5 Bcf/d, any additional increase in production will tip the market into surplus, while any decrease below this level would tip the market into a deficit.

• Weather models have trended colder, with the back-end of the model showing a return of colder-than-normal weather by mid-December.

January Henry Hub contracts are trading near their fair value today ($4.921/MMBtu). The only way for prices to move higher is if the colder-than-normal weather forecast in December materializes.

According to Commodity Wx Group, December 2025 is expected to be colder than normal.

Source: Commodity Wx Group

In addition, CWG is pointing out another stratospheric warming event.

If such a scenario materializes, we expect January contracts to hit $6/MMBtu.

What about fundamentals?

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