Natural Gas Short Squeezes Into The Settle

Yesterday we closed our blog by saying that winter volatility was likely to return soon to natural gas, and that it sure did. We saw a wild day of price action today, with prices rallying overnight on a bullish run of the European ensembles before selling off on strip weakness through the day and spiking off some more bullish weather guidance into the settle. 

Through part of the trading day it appeared that cash prices were propping up the front of the strip, but by the settle that was clearly not the case. 

G/H ticked higher on the day too, though is still below recent highs. 

This rally did not come as all that much of a surprise. Overnight model guidance did trend more supportive, and our early morning text message alert to subscribers warned that $2.98 resistance may be in play. 

Yet most of these colder trends are inside the next 8 days, as the afternoon Climate Prediction Center 8-14 Day forecast remained similar (actually trending a bit warmer in the East). 

We thus continue to see a number of conflicting factors at play in the natural gas market. Of course, underpinning this all is an expectation for a massive drawdown to be announced from storage on Thursday. Most estimates show that the drawdown should be larger than 300 bcf, easily setting a new record. This includes estimates of demand coming in around 137 bcf/d per the EIA. 

The natural gas market has been pricing in concerns about large drawdowns and limited stockpiles moving through the winter via the H/J spread, which also moved out significantly today. 

Focus will remain on the latest weather forecasts, which seemed to drive a lot of the short-term volatility today. We continue to publish twice-daily GWDD forecasts that are then broken down with an explanation on how recent forecast changes are likely to impact the natural gas market. Combine that with our other alerts and reports on our weather-driven natural gas sentiment, key levels to watch for, and our expectations for future changes in current weather forecasts and we work to keep you ahead of all aspects of weather's role in the natural gas market.