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James Hyerczyk
Natural Gas

Natural gas futures finished higher on Friday but did give back some earlier gains. Nonetheless, the market was able to hang on to enough of its gains to finish better for the week. The choppy trade at the end of the week was the product of uncertainty over liquefied natural gas (LNG) and weather demand and whether the two key factors can combine to curtail a potential toppling of storage inventories before heating season begins on November 1.

On Friday, December natural gas futures settled at $3.271, up 0.010 or +0.33%.

Inconsistencies in End of Month Forecast

Prices rose early Friday as an increasingly chillier weather pattern emerged for the end of October, but with two weeks to go before that time, doubts of its development surfaced throughout the session, encouraging the early buyers to trim their speculative long positions.

Sellers credited the midday Global Forecast System (GFS) for the intraday setback. The GFS continued to favor cold slowly easing across the northern and central United States October 29 – November 1, while hinting the cold air could hold longer, NatGasWeather said. However, its data also showed inconsistencies after October 24-25.

“What’s likely to be of greatest importance is how the weather data trends for October 28-November 1 and whether cold shots can prove to continue into the northern United States,” the forecaster said.

Another inconsistency is the European model, which favors a milder pattern gradually returning October 28 to November 1. Meanwhile, the GFS model shows demand slowly easing but trying to maintain its strength a little longer during the same time period.

NatGasWeather noted that it was important to consider that the GFS model has had “credibility problems” to start the heating season by over-forecasting cold shots, which is evidenced by giving back a huge amount of demand for the coming week.

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Short-Term Outlook

Friday’s firm but choppy price action confirms the influence of the inconsistencies in the weather pattern, but it also reaffirms the notion that buyers aren’t going to gain confidence in playing the long side of the market aggressively until consistent cold weather demand aligns with strong LNG demand. Until we see this potentially bullish combination emerge, fear of containment issues will continue to keep a lid on prices.

For a look at all of today’s economic events, check out our economic calendar.
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