EC Natural Gas Declines: Some Seasonality At Play

On the first trading day of each week, we publish our Detailed Weekly Update, outlining the expected EIA data on Thursday and weather from the past weeks, weather forecasts and risks through the next 3 weeks, and a look at technical indicators within the natural gas market. This week, our seasonality analysis caught our eye, as we noticed a trend that seemed to support the large sell-off we have observed thus far today.

Each day we attach our 5-year seasonality model for the natural gas prompt month contract. Interestingly, the model indicates that prices typically set a summer top on July 5, and on average July 6 has been down 3.81% the last 5 years. Following that, July 7 has been down on average 2.52% over the past 5 years. Of course, it is also worth noting that the last two years July 5 was not a trading day as it fell on a weekend, leading to any post-holiday selling to come on the ensuing days. This can all be seen in our report page today covering this model.

natural gas commodity weather

It would seem that historically, looser holiday scrapes have tended to send prices lower following the July 4 holiday after they rally heading into the holiday, potentially off continued expectations of summer heat. From there, it is worth noting that prices do tend to recover decently from their post-July 4th losses, rebounding back into the middle of the month. However, continuing out even further we see some very strong bearish seasonal signals for late July through the month of August. Oftentimes, speculation around extreme heat early in the summer will bid up prices, and if that heat does not materialize prices can tend to fall back, even if temperatures are slightly above seasonal averages. Last year was no exception, as we saw a large rally in prices early in the summer (late May) and selling later in the summer (late August into September).

Thus, natural gas prices in heavily overbought levels seem to have been hit by seasonal weakness as the July 4 weekend scrapes again showed the holiday weekend cutting into demand. Seasonality would indicate that there could be some more selling over the next couple of days, but at least some type of positive recovery has occurred following such a sharp reversal in the past.

For more details on the expected implications of this within the natural gas market and daily updates on various weather models and their expected ...

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Chetan N Patel 3 years ago Member's comment

Thank you for the contribution to the site. I found your findings really interesting. I would like to know what gave you the idea to research such a topic. I hope to read more of your articles in the future.

Chetan Patel

Jacob Meisel 3 years ago Author's comment

Thank you for your comment and kind words, Chetan! I began by studying meteorology and the impacts it has within the financial markets, and proceeded to home in on the natural gas market, a market known for swinging wildly due to changes in weather forecasts resulting in different energy demand expectations. To create analysis that was more useful to traders, I decided to pare weather analysis alongside other fundamental/technical analysis into a subscription product, so traders could subscribe and more easily determine when the weather or other fundamentals/technicals were driving price action. Since then, I've been researching other models/theories on price movement to combine alongside the meteorological analysis I conduct. I definitely enjoy posting to this site and plan to continue as regularly as I can.

Jim D. Morgan 3 years ago Member's comment

Fascinating, I've signed up to follow your work.

Chetan N Patel 3 years ago Member's comment

That is a very interesting approach of things, keep up the good work. I'll be looking forward to reading any future articles published by you.