The writing was on the wall Sunday, with weekend data pointing to the risk of a large sell-off in the natural gas market. In our pre-open Sunday Update for Trader level subscribers, we highlighted warmer weather changes, and risks for warmth to continue on into at least early December, which combined with supply / demand balance data that was not as tight as recent weeks, led us to forecast a decline toward the 2.75-2.80 level in the prompt month December contract this week, after a Friday close just under the 3.00 level.
Little did we know we would reach the target and then some already on the first day of the trading week, as the December contract plunged roughly 30 cents to settle just under 2.70.
The selling was furious along the entire curve, indicating that there was a lot of length getting forced out of their positions, which makes sense given how long the market had been, simply giving more fuel to the bearish fire.
Now, the question is, was today's move overdone relative to the data? It is only the 16th of November, so there is plenty of winter ahead of us. That said, Mother Nature is not throwing any remaining bulls a bone yet, with today's guidance still heavily favoring a strong +EPO regime as we end November and begin December.
A warm start to December would come on the heels of what is looking like a safe bet to be a top-five warmest November on record, based on total GWDDs.
Simply put, while there could be relief bounce back in prices after today's carnage, we need the weather pattern to at least step away from blowtorch warmth in order to put together any sustainable rally. At Bespoke Weather Services, our focus is to closely monitor weather signals, and, through our proprietary modeling, translate what these signals mean to natural gas demand in order to assess risks to prices.
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