Wow, That Was Fast
When is it time to get bullish natural gas?
The widowmaker strikes again. Following our NGF on Oct 4 detailing how the worst isn't over yet for natural gas, November contracts fell from $3/MMBtu to $2.37/MMBtu.
The sell-off was most meaningful in the prompt month as the curve remains heavily in contango.
Source: CME
Where is the bottom?
With heating demand now expected to be the main driver for natural gas going forward, any disappointment in the weather model outlook will materially push prices lower. So while it appears that the recent decline might have gone too far, we would argue that if the weather outlook remains persistently more bearish, prices have more room to drop.
In fact, if you look at the 6-10 day and 10-15 day outlook, there are no signs of bullish weather on the horizon.
6-10 Day
10-15 Day
And for readers that are not aware of what these maps are showing, just know that if the Northeast region shows yellow to red patterns, it means that natural-gas-related heating demand will be lower than the seasonal average. In other words, if heating demand is below the norm, then it's bearish on demand.
In my experience trading natural gas, the only way for such a bearish weather pattern to turn is if we see signs of a "pattern change" in the 15-day outlook.
In this case, you can see the 15-day cluster showing firmly bearish signals.