Tuesday, January 21, 2020 at 11:42AM
Warm weather continues to take a heavy toll on the natural gas market, with the long weekend bringing even more changes to the warmer side, enough so that, on a Gas-Weighted Degree Day (GWDD) basis, we are now projecting this January to be the 3rd warmest in our historical dataset, behind only 2006 and 1990.
The pattern has a very “El Niño-like” look, which without any high-latitude blocking leads to warmth across most of the U.S. outside of parts of the South.
Despite the historically low price environment, it is difficult to avoid moving even lower with a high-level warm pattern in the middle of winter. We hit on these points in our “Pre-Close Update” sent out to clients Friday afternoon, taking a slightly bearish stance into the weekend despite Friday’s close being almost dead on $2.00 in mid-January with a market that is already heavily short, citing the likelihood of continued warmth taking us lower.
So far, that is exactly what has happened, with prompt month prices currently down in the low $1.90s.
All the while, we continue to see production well under the highs from late November, which along with stronger weather-adjusted power burns has helped tighten supply demand balances.
In a “normal” scenario, this would be increasingly bullish, but this weather pattern is, as shown above, anything but normal, and will continue to rule price action as long as it stays biased strongly to the warmer side of normal.
Can the run of warmth continue well into February, or will we finally see things change enough to stop the natural gas price plunge? We track both weather and fundamentals closely in our daily reports, providing a unique blend of data to present a clearly view of future price action. Sign up for a 10-day FREE trial here if you are an active trader in the natural gas market, and would like to take a closer look at our products and research.
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.
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.