After a strong rally that sent prices in the December natural gas price all the way to $2.90 last week, sellers have been in control over the last few sessions. We did see a drop in projected demand in weather forecasts coming out of the weekend, but that has changed in the last 48 hours, with a healthy move back in the colder direction, especially by the GEFS model.
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Despite the move back colder, we have seen no hint of a bullish reaction in the land of prices, as the December contract has fallen all the way down below the $2.60 level today.
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This is typically the time of year when weather changes rule when it comes to natural gas volatility, so what gives? There are a couple of issues. As seen in the chart above, even with the colder change over the last 48 hours, projected demand beyond this week still is just "near normal", with no days anywhere close to this week's peak cold.
Another issue is with supply. We saw a new record high in production this past weekend, and while there are some freeze-offs currently, leading to a decline in production, the amount of freeze-offs appears to be less than what the market had anticipated given the strength of the cold.
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In addition, Canadian imports have ramped up this week, making up for a large portion of what production declines we have seen.
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The end result is that this week's supply is turning out to be higher than expected, and that is, for now, negating the gain in forecast demand seen over the last two days, especially with no days in the forecast strongly to the cold side in the medium range.
Now, if we continue to add demand back, or see a colder start to December, it is likely the market will take notice more. Or, on the flip side, if the pattern steps solidly to the warmer side in December, there is likely still room to fall considerably, even from today's price levels.
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