Warmer Weather And Record High Production Send Natural Gas Prices Tumbling

After what looked like a rather promising natural gas open Sunday evening for the bulls, we have seen nothing but selling since then. Today is the December contract's final day on the board, and as of this writing, it sits at a price level of $2.43, more than 25 cents lower than we saw immediately after the Sunday open.

Why such carnage? The primary reason has been due to a solid warming trend in weather models since Sunday evening. Sunday night's models all trended solidly warmer, and that continued into this morning, with models solidly warmer compared to 24 hours ago.

An even better visualization of the change comes from looking at how forecast trended since Friday in map form. Here is the 11-15 day forecast from midday Friday run of the GEFS:

Now, let's look at the latest run, valid the same days:

Why such a large change? Models have had a difficult time resolving the pattern in the high latitudes. The latest modeling features more troughing (lower 500 mb heights) both around Alaska and over Greenland, a setup which typically keeps strong cold bottled up well north of the United States. As a result, the cold shown in Friday's models has faded away, lowering forecast weather demand.

While weather is most often the primary driver of price volatility at this point in the season, it was not the only piece of bearish news. We continue to see new all-time highs in dry production, with new highs over the weekend, and yet another new high just yesterday.

We are also heading into a holiday period, typically a time when we see a weaker overall market in terms of gas burns, something which could be exacerbated this week, as wind output looks rather high through the long holiday weekend.

To summarize, we've basically seen a "perfect storm" of bearish factors line up so far this week. Granted, the weather pattern is not super warm, so it could be worse, but each of the last two weeks also started off with warmer changes, only to move back colder later in the week. Will we repeat that trend this week? Has the market at this point "priced in" the bearish data? We will soon find out, and as always, will be monitoring the data closely for any changes.