Don't Buy The Dip In Natural Gas

To those of you that read our articles on natural gas and avoided it altogether, kudos to you. Natural gas is now flirting with the $1 handle and given the latest weather outlook, it appears to be only a matter of time.

As we have said repeatedly in our articles, winter gas trading is all about weather, weather, and weather. And sadly, this is one of the warmest winters on record for both the US and Europe dating back to 1950.

This is best illustrated in the storage projection chart below:

We are on track to finish around ~1.85 to ~1.9 Tcf, which will be well above the 5-year average of 1.65 Tcf. To make matters worse, even if we take the weather side of the equation out, we estimate the natural gas market today to be oversupplied by ~1.5 Bcf/d.

And you can see that over the next 5 storage reports, we expect draws to be less than the 5-year average by 175 Bcf.