This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.

Natural Gas Freefall Continues Unabated

Monday, December 07, 2020 at 10:40AM

Over the last several days, we have seen a perfect storm of factors come together to lead natural gas prices much lower. Just since Wednesday morning, the prompt month January contract has declined more than 50 cents.

prompt natural gas

Given the time of year, one would assume that weather forecast changes have played a key role in such a decline. That assumption would indeed be correct. Model guidance since the middle of last week has rapidly shifted toward projection the re-emergence of a strong upper-level low anomaly centered near Alaska, an earmark of a significant positive EPO regime.

Such a pattern is highly correlated to significant warmth across much of the nation

As a result, our forecast GWDD totals moved much lower this morning, relative to Friday’s outlook.

While this is a very important development, it is not the *only* reason for the steep selloff. The market has been very long based on fundamental expectations. The following chart shows market positioning as of last Tuesday.

money manager percent of open interest

Given that we are nearing the end of the year, and already had seen a notable decline in prices during the month of November, it is likely that many folks simply liquidated late last week, evidenced by the selling across the entire natural gas curve. We believe this accelerated the price declines.

Also, we had a bearish EIA report last Thursday. Now, it is tricky anytime you are dealing with a holiday week, but even adjusting for holiday demand impacts, the number reflected a much looser supply / demand balance. We are seeing signs that this week’s report will reveal that balances have tightened back up, however.

In short, it was a rare combination of various factors that led to the recent plunge. We are now more than $1.00 off the highs in the January contract. Certainly, one would think the recipe exists for a strong snap back, based on a fundamental picture that is improving again, but the big hindrance right now remains Mother Nature. High-end warmth in winter always takes precedence over anything fundamentals can throw at the market.

With access to our daily report, the active natural gas trader can keep up to date with the all of the latest trends in both weather and fundamentals data in order to anticipate where prices will move next. 

Sign up for a 10-day FREE trial here to take a closer look at our products and stay ahead of the market.

Originally Posted on December 7, 2020 – Natural Gas Freefall Continues Unabated

Disclosure: Bespoke Weather Services

Disclaimer: Bespoke Weather Services, LLC believes all information contained in this note to be accurate, but we do not guarantee its accuracy. None of the information in this post or any opinions expressed constitute a solicitation of the purchase or sale of any securities or commodities.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Bespoke Weather Services and is being posted with permission from Bespoke Weather Services. The views expressed in this material are solely those of the author and/or Bespoke Weather Services and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.

trading top