Spilling Cold Water
Our take on the latest natural gas price move.
The natural gas market tends to move to extremes. The extremes become so obvious from a 1) sentiment and 2) fundamental perspective that if you are following the fundamentals closely, you can usually spot a trading opportunity.
And looking at the recent surge in natural gas, I think it's time we all start to temper down our expectations a bit. While it is true that the latest weather model update shows severe cold on the horizon, the duration is short, and the impact to storage, while large, is still not enough to severely push storage to a material deficit.
As we will explain in this article, natural gas is priced for perfection.
Weather Models Show?
The most recent ECMWF-EPS weather updates have started to show higher cold intensity in the 6-10 day range. This has pushed higher storage withdrawal estimates, which is what's causing prices to rally.
ECMWF-EPS TDD Table
ECMWF-EPS TDD Chart
6-10 Day Outlook
10-15 Day Outlook
15-Day Cluster
But if you look at the charts closely, you will see a bearish weather pattern developing at the tail end of the 15-day outlook. The dreaded Southeast ridge makes a return in this outlook, and the incoming weather model updates will show gradually warmer-than-normal temperatures into early February.
This is something we've been pointing out for over a week now, and the models are starting to converge to this update.