Natural Gas Prices Explode Higher This Week As Forecasts Turn Colder

What a week it has been in the natural gas market, and we have not even reached the middle of the week yet. Today was the last day the November contract will be on the board, and it went out with a bang, up nearly 30 cents from Friday's close.

The entire curve has gotten in on the "rally" act, though the front has been where the biggest gains have come.

The reason for the monster rally? Weather. Yes, it is that time of year where focus shifts to Mother Nature in terms of what will most drive natural gas volatility. We have seen quite the colder change for the first half of November since back on Friday. Here is what the models showed in terms of forecast Gas-Weighted Degree Days (GWDDs) last night, compared to just 24 hours prior.

Notice both the GEFS and the ECMWF Ensemble (EPS) showed much higher forecast demand, and that doesn't even account for colder changes seen over the weekend.

A better visual image is the GEFS forecast from 5 days ago, valid next week.

That's not a big warm look by any means, but look at how the forecast trended as it rolled forward, seen in this morning's run of the same model, also valid next week.

The trend has very obviously been in the colder direction, quite solidly.

Now, while weather has been the catalyst the bulls were looking for, the move has likely been exaggerated by the massive short position the market has been holding.

With the market so heavily short, a solid bullish catalyst (enter weather) can force at least some of the shorts to cover, enhancing the rally, and that's likely been a big part of what we have seen the last couple of days.

Can weather continue to propel the market higher from current levels? It is possible. We saw that last year, albeit with much higher prices than we will see this time, but every year is its own beast, so it will require careful monitoring as we move forward.