It's not how you start, but how you finish. That's today's motto for the natural gas market, which looked poised to close potentially several cents lower on the day in early trading. The September contract was down more than six cents at one point before staging a major comeback and ending the day a penny higher than Friday's close.
The initial downward push came as the result of bearish forces on both the supply and demand sides of the equation. First, we saw new all-time record highs over the weekend in natural gas production.
On the demand side, the weather forecast shifted cooler, resulting in fewer Gas-Weighted Degree Days (GWDDs), or in simpler terms, less natural gas demand compared to Friday's forecast.
Basic economics says when you have more supply and less demand, price should fall, and that's what happened in the early morning hours. But notice in the above graphic, despite the cooler change (fewer GWDDs), the 15-day GWDD total is still well above normal, some 12.5 GWDDs above normal to be exact. Furthermore, when looking at the daily GWDDs in chart form, we see that tomorrow is the hottest (highest GWDD total) of the entire forecast period.
The high near-term heat led to strong Henry Hub cash prices, which at one point traded as much as 6-7 cents over prompt month, and rallied as the session wore on, taking prompt month prices close to unchanged on the day after the early morning lows.
A second boost came about an hour before the market's close, as it was reported that exports to Mexico may increase as early as next week due to the Sur de Texas pipeline finally coming into service, finding a home for a little of the excess supply, as pushing prompt month prices over the top to finish green on the day.
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