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James Hyerczyk
Cold Temperatures

December natural gas gapped lower on Monday and remained under pressure all session. The gap opening was expected, but no one was certain of its direction until warmer-trending weekend forecasts shifted sentiment to the downside. Traders also said that more than adequate supply levels also weighed on prices. The chart pattern is also in play as the steep break drove the market into a key retracement zone that could determine the near-term direction of the market.

Change in Forecast

Bespoke Weather Services said, heading into Monday’s trading, both the American and European models had shifted warmer by several gas-weighted degree days (GWDD) compared to Friday’s outlook.

“The warmer changes take place after this week, which remains very strongly cold, with a couple of days near daily record GWDD levels,” the forecaster said. “Guidance has sped up the changes on the Pacific side of the pattern, eliminating the strong ridge over Alaska, cutting off the flow of Arctic air southward into the United States.”

Modeling suggests more ridging could rebuild over Greenland, however, which it would “keep an upper level trough in the eastern half of the nation into Thanksgiving week, but without true Arctic air.”


Strong Production

Bespoke also said that production set a new all-time high over the week-end at over 95 Bcf/d, putting more pressure on weather-driven demand to soak up the supply.

“The market is simply showing yet again that we must have strong demand/cold in order to stay at the levels seen last week,” Bespoke said.

EBW Analytics said chilly temperatures later this month will give bullish traders their “best shot” at hitting the psychological $3.00 level, but “so far, though, it looks like this effort will fail.”

EBW further added that, “With temperatures expected to return to seasonal norms in another week and weather modeling runs trending milder over the weekend,” prices have already started to “plunge” heading into Monday’s trading and “could crumble if temperatures moderate further in early December, as we expect to occur.”

Early Look at Energy Information Administration Weekly Storage Report

The Desk’s Early View survey suggests it’s 50/50 whether the market sees one more net weekly injection. Responses to the survey ranged from a withdrawal of 5 Bcf up to an injection of 9 Bcf, with the average of 18 predictions landing on plus 2.6 Bcf for the week-ended November 8.

Chart Pattern

The main trend is up according to the daily swing chart, but the selling has taken the market dangerously close to the last main bottom at $2.575. A trade through this level will change the main trend to down.

The main range is $2.388 to $2.905. A test of its 50% to 61.8% retracement zone at $2.647 to $2.585 could attract some speculative buyers to slow down the selling pressure.

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