Don't Buy The Dip In Natural Gas Just Yet

Natural gas looks very appealing here. I totally get it. It has fallen from over $7 just a few months ago to $2.7/MMBtu. But it's important to remember that we are still in the heart of winter gas trading, and there are only two things that matter:

• Weather

• Storage

January 2023 will come down as one of the warmest Januarys in the last decade. As a result, natural gas storage is currently on pace to finish withdrawal season above ~1.8 Tcf or +200 Bcf vs the 5-year average.

The reason why storage is so important is that it determines the psychology of the traders. If we finish winter gas trading with a surplus to the 5-year average, the immediate ramifications are that we have enough gas in storage regardless of the implied fundamental supply and demand balance. Now throw in the fact that supply and demand today are indicating a small surplus, and traders will see no need to rush in to buy back gas.