Weather Conspires Against Natural Gas Prices

It was a rough week for natural gas bulls, as prompt month prices slid lower four of five days and settled today below a key support level that we had been watching all week. 

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This came even as the Energy Information Administration confirmed that the supply/demand balance in the market is incredibly tight, with one of the smallest October gas injections into storage being reported. Over the past six years this was the smallest injection to be announced for Gas Week 39, and was also the tightest on a weather-adjusted basis. 

The result is that total gas stockpiles have fallen below the 5-year average for the first time since January, setting us up with a supply shortage ahead of the winter heating demand season. 

Yet prices were entirely unfazed, reversing off of their intraday highs following the data to close down yesterday before accelerating lower today. Much of this appears due to our specialty: the weather. Recent forecasts by the Climate Prediction Center, which we organize every day for our subscribers, show that even though forecasts were warm before, cold risks are clearly easing even further through October. 

This is something we had been watching all week and alerting subscribers to, as bearish weather expectations have certainly depressed prices in the face of structural tightness. Even now, the most recent run of the American GFS ensembles in the 8-14 Day time frame seems to show a bit more warm than cold risk, though it is cooler than previous runs in this time frame (and at the end of the run trends warmer again). 

Not only this, but Tropical Storm Nate looks likely to make landfall along coastal Louisiana, which is one of the largest natural gas demand regions this time of year. Though the path will certainly impact some oil and gas rigs, the below path will also have demand implications. 

Yesterday we published a detailed Note on this to subscribers explaining why we saw Nate as either neutral to net slightly bearish depending on the exact track, but that regardless it would not significantly drive natural gas prices (and certainly not be bullish like the 2005 hurricanes were). 

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