Natural Gas Has More Upside As Weather Models Turn Bullish
Two days ago, we saw a major shift in the ECWMF-EPS 15-day outlook. The Alaska ridge returned, which foreshadows colder than normal weather in the East Coast. We initiated a long BOIL position at $43.52 and paying subscribers received a trade alert.
Fast forwarding to today, ECMWF-EPS still shows a very bullish setup going into early January.
Source: Weatherbell.com
As you can see from this 15-day outlook, ECMWF-EPS is showing a massive ridging pattern from Alaska all the way to Greenland. Such a pattern usually foreshadows colder-than-normal temperatures on the East Coast and Europe.
I suspect the oil market has not caught onto this yet judging by the lackluster move in WTI and Brent, but with heating demand likely to come in higher than expected to start 2025, the surplus balance people are expecting won't materialize.
Nonetheless, the natural gas market will always move well before the oil market, and we think the recent run-up has not fully captured the real upside in natural gas. If weather models indeed turn bullish for January, we see an upside to as high as $4.25/MMBtu for January contracts and $3.25/MMBtu for March contracts.
From a natural gas balance standpoint, a colder-than-normal January will go a long way in eliminating the surplus in storage.