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James Hyerczyk
Natural Gas

Natural gas futures are trading higher as traders await the release of government storage statistics that could set the tone for the rest of the session. Traders are also keeping a close eye on the latest weather forecasts since they have been the catalysts driving the price action all week.

At 08:59 GMT, January natural gas is trading $2.288, up $0.045 or +2.01%.

On Monday, prices gapped lower as weekend forecasts took out the chances of extremely cold weather during the rest of December. Some traders felt the selling was overextended. This combined with the introduction of reports calling for renewed demand has helped the market recover most of its losses from earlier in the week.

“Stopped Moving Warmer for Now”

Natural gas prices posted a two-sided trade on Wednesday before closing lower. Early in the session, the market rallied as weather models turned chillier, but sellers erased those gains into the close. Natural Gas Intelligence (NGI) reported:

“While hopes are slim for a white Christmas, weather models are showing some cooler air and higher demand over the next 15 days. However, the Global Ensemble Forecast System (GEFS) once again made a much larger move than the European model overnight, adding a whopping 36 forecast gas-weighted degree days (GWDD),” according to Bespoke Weather Services.

“The midday run of the American weather model added even more demand to the outlook and was 50 heating degree days ahead of its European counterpart at midday.”

“The European data remains much more consistent, having added just three forecast GWDDs since Tuesday and maintaining the much milder outlook in its Wednesday afternoon run.”

Bespoke continues to favor the European model as the GEFS has shown that “it is simply unreliable” the last few weeks in this pattern, and again appears to be pushing more cold into the United States than what the pattern suggests should occur given the large trough in the Gulf of Alaska region, “a feature which typically helps keep colder air bottled up in Canada.”

“Nevertheless, even in the European data, “we have stopped moving warmer for now, though the pattern out toward Christmas Day still doesn’t indicate an imminent turn back colder yet,” Bespoke chief meteorologist Brian Lovern said.


U.S. Energy Information Administration Weekly Storage Report

Most estimates as of Wednesday’s close pointed to a withdrawal in the 70s to low 80s Bcf range.

Bloomberg is predicting a withdrawal of 72 Bcf to 81 Bcf, with a median of 78 Bcf. Reuters analysts are looking for a draw of 76 Bcf, with some estimates as low as 62 Bcf. The Natural Gas Intelligence (NGI) model predicts a pull of 75 Bcf.

Daily Forecast

Fresh weather forecasts and today’s EIA storage report could influence the price action the rest of this week.

Additionally, “The current fundamental outlook is very bearish on a seasonal basis, and may succeed in cracking support to open the way to another leg lower,” according to EBW Analytics Group. “In addition to the generally weak weather forecast, the winter holidays generally bring significantly reduced spot market demand, potentially foreshadowing further downward pressure.”

Basically, unless there is a significant change in the weather forecasts toward the extremely cold side, the major players are likely to continue to sell rallies.

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