Natural Gas Price Fundamental Daily Forecast – Aggressive Short-Sellers Set on Driving Out Weak Speculators
Natural gas futures are down for a third session on Wednesday, tumbling to its lowest level since August 26 as gas output rose to record highs and stockpiles remain healthy for the winter. The rapid sell-off in natural gas resulting from changing weather forecasts have knocked some speculators out of business, including the Amaranth hedge fund, which lost over $6 billion on gas futures in 2006, according to Reuters.
At 15:35 GMT, January natural gas futures are trading $4.347, down $0.220 or -4.82%.
How Bearish? ‘Widow Maker’ Spread Hits 20-Month Low
Traders are saying the drop to a three-month low in natural gas prices along with a collapse in oil prices has cut the 2022 March-April spread to its lowest in 20 months.
The gas industry calls the March-April spread the “widow maker” because a sudden shift could put small speculators, hedge funds and other professionals out of business rather quickly.
The premium of gas futures for March over April fell to 28 cents per million British thermal units (mmBtu), the lowest since March 2020.
That is a massive narrowing of the spread, which hit a record $1.80 in early October when the markets worried about tight U.S. gas supplies during the winter because stockpiles were over 6% below normal and output was slipping, Reuters reported.
Short-Term Weather Outlook
According to NatGasWeather for December 1 to December 7, “Cool air lingers across the Great Lakes with chilly lows of 10s to 30s. However, most of the rest of the U.S. will be mild to nice with highs of 50s to 70s for light demand.
A weather system/cold shot will push into the Midwest late this weekend into early next week with lows of 10s to 30s for a minor increase in national demand, although still much warmer than normal over most of the rest of the U.S. with highs of 50s to 70s.
Overall, national demand will be low to very low.”
EIA Weekly Storage Estimates
Natural Gas Intelligence’s (NGI) machine learning model is predicting a net 58 Bcf withdrawal for the week ended November 26. That would compare bullishly with both the five-year average (minus 31 Bcf) and year-ago (minus 4 Bcf) withdrawals for the period.
The current downside momentum has put the August 19 bottom at $4.009 on the radar. Although some technical indicators are saying the market is oversold, that’s not the reality of the situation.
It’s a big market with a lot of major players. With the fundamentals on their side, they are going to press this market until the last speculative long is chased out of the market. They don’t care about technical indicators, they watch the price action and order flow at critical price levels. Oversold indicators are overrated. They don’t exist in the real world.