Heat Rallies Natural Gas, But Winter Contracts Lag

The August natural gas contract rallied around 3% right into resistance today, as seen below. 

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The entire strip closed up today, though gains were most pronounced near the front of the strip. Gains were far more tempered into late Winter and Spring 2017. 

On the week as a whole, the winter and spring contracts declined compared to last Friday while the front end contracts rallied. 

The story remains the same, with concerns of excess natural gas in storage limiting upside within the market while record heat is keeping power burns quite elevated. Maintenance on the REX pipeline temporarily limited production levels this week, helping supply seem more supportive as Northeast and Appalachian production plummeted. This likely played a role in bolstered cash prices and this end of week rally in futures. 

Even so, the EIA also reports an increase in supply from last week thanks to an increase in Canadian imports. This came as marketed production fell back off slightly. 

With this short-term heat, however, we were able to see prompt month gas prices close at their highest levels since July 8th. The winter strip, from X6 to H7, meanwhile, was not even able to take out the closer high set on July 15th. 

(Click on image to enlarge)

In the near-term, there will remain a number of weather trades within the natural gas market. As the August contract expires next week, it could see added volatility as impressive heat through the next week keeps spot prices elevated. Additionally, there are significant questions about how cool it gets in the 7-9 Day timeframe, when a number of models show cooler weather could dive into the Midwest, and models disagree on the ridge axis orientation in the long-range which will determine how elevated cooling demand will remain. This was the focus of our Pre-Close Update that we just passed along to clients, outlining where the main bearish and bullish weather risks will exist through the weekend. This is something the Climate Prediction Center has also picked up on, showing cooler weather likely across the center of the country in their 6-10 Day forecast despite heat continuing in the East. 

The front-end of the strip will likely see some weather-induced volatility next week after what was a slow beginning to this week. The winter strip, meanwhile, should help us determine just how much upside (or lack thereof) there will be off any weather move higher.