It has been an eventful couple of weeks in the natural gas market, with prices ending this week strong, despite a second consecutive bearish EIA report yesterday. The prompt month July contract did wind up settling a few cents off its intraday high, still within the $2.90 to $3.00 prompt month trading range that has dominated for a month now, but on the high end of the range.
We mentioned the bearish EIA report, which temporarily took prices to the low end of the range yesterday, as the EIA revealed a build of 115 bcf for last week, confirming what we saw last week, in that supply / demand balances had loosened appreciably.
Also, today's Henry Hub cash prices were weaker day-over-day, meaning that the rally took the prompt-to-cash spread higher than it has been for awhile, ending the day at just under 15 cents, which is wider than the market "typically" has been comfortable with.
Given the combination of yesterday's report, and weaker cash prices today, where did the strength in prices come from? The main factor lies in the weather, as, despite the current cooler shift, heat is projected to return rather quickly, with all regions outside of the South running hotter than normal.
This equates to Gas-Weighted Degree Days (GWDDs) that will be well above normal starting around June 5th.
This makes it easier to look past the current bearish factors, as the increase in GWDDs means higher gas burns are on the way, and also, in theory, can result in higher Henry Hub cash prices, hence the buying in today's session. Sounds simple enough, right? Time will tell, as this market typically does not like to make things easy for those who trade it.
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