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Ready For NatGas' Biggest Bull Market This Year?

Published 11/07/2019, 12:41 PM
Updated 09/02/2020, 02:05 AM

The biggest bull market of the year in natural gas is shaping up, with huge stakes riding on an intense freeze forecast in the eastern two-thirds of the United States — the country’s most-closely watched heating market.

After tacking on 18% last week to give October a net gain of 13%, benchmark gas futures on the New York Mercantile Exchange’s Henry Hub are headed for yet another positive week, rising 4% in the three sessions to Wednesday.

Natural Gas Futures Price Chart

Underscoring the bullish market, Thursday’s gas storage reading from the U.S. Energy Information Administration at 10:30 AM ET (15:30 GMT) could show a build of just 45 billion cubic feet for the week ended Nov. 1 — versus 89 bcf for the previous week to Oct 25.

Latest Gas Injection Seen Nearly 50% Down As Heating Demand Spikes

The sheer cold that led to a near 50% drop in gas injection levels in just a week is exactly what has got the market all hot and bothered since late October.

But even if the injection levels turn out to be higher than forecast, they are unlikely to take away much of the market sentiment — that seems to be the consensus.

As Scott Shelton, energy futures broker at ICAP in Durham, North Carolina, explained in his daily note on gas Wednesday, “data has taken a back seat to weather.”

So, just how intense a cold are we looking at?

A “Very Cold” Outlook For 6-10 Days

According to ICAP’s Shelton, weather models overall are still showing a “very cold forecast for the next 6-10 days; then the below-temps moderate from very cold to just slightly above normal by the end of the 11th-15th day.”

Dan Myers of Gelber & Associates, a Houston-based risk consultancy on natural gas, concurs: “One thing that hasn’t yet shown signs of fading is the impressively cold weather pattern in the eastern two-thirds of the U.S. over the next fifteen days.”

Myers says:

“Forecast revisions have caused continual revisions of demand and storage expectations in recent days and we are only beginning to get our hands around what the upcoming period will hold.”

Arctic Air

Dominick Chirichella, director of risk and trading at the Energy Management Institute in New York, says a warning shot of anomalous cold will sweep through most areas later this week. Chirichella adds:

“The main hit of arctic air will occur during the day 6-10 time frame with gradual modification during the day 11-15. Temperatures were lowered during the coldest times.”

“The cold pattern will remain in place across the Central and Eastern U.S. for days 11-15. The colder temperatures will be early in the period, but temperatures should modify toward the end of the period. Temperatures will be above normal in the West, but anomalies should begin to decrease.”

Last week’s weather itself was colder-than-normal. Thomson Reuters’ data provider Refinitiv points to 102 heating degree days (HDDs) for the week to Nov. 1, versus a 30-year average of 80 HDDs for the period. HDDs measure the number of degrees a day’s average temperature is below 65 Fahrenheit (18 Celsius) and are used to estimate demand to heat homes and businesses.

And Refinitiv says gas production in the lower 48 U.S. states averaged another record high at 94.3 bcf per day last week.

Gas Rated “Strong Buy” Despite Record High Production

Thus, if the EIA reports a smaller gas injection for the week despite such record production, it speaks for the price strength in gas, analysts say.

Investing.com’s Daily Technical Outlook was still calling a “Strong Buy” in natural gas at Wednesday’s settlement of $2.83 per million metric British thermal units on the Henry Hub. Resistance levels were cited at $2.87, $2.92 and $2.94.

But some analysts were already thinking of $3 gas, citing even higher gas consumption levels in the coming weeks.

Said Chirichella:

"Air mass modification will begin during this period, but any real warming trend will wait until later in November.”

Latest comments

As usual the articles on this site are great contrarian indicators. I'm still long from under 2.2 fyi. :)
Is it possible to have an inverse head and shoulders within a cup and handle formation?
If so, does it have any bearing on the price action?
What are the  equities  of the GAS providers who are expected gain on this?
Hi, Although the report release was way below the expectation the price fell. As you said it could be profit taking. Still chances are there for this price to sky rocket isn't it?
Anything is possible, Praveen. It's already colder today than yesterday. That doesn't necessarily change anything, but you get the idea.
Could you please explain why NG price plunge although 10 Bcf less than expected rise in EIA report. I have hard time to comprehand it. Thanks in advance. With Respect.
Pure profit taking. Some were in from the 2.50 level. That's a of money not to cash out for some people. Unfortunately, those who walked in today got clobbered in the late session. But I believe a rebound is in the cards by tomorrow based on the coming cold that's been forecast.
Thank you Sir. I appreciate for your reply.
Let it be known to all here, particularly a commentator, called "Long/Short", that I have ABSOLUTELY no positions in this market or any asset that I write about, and therefore my BIAS IS ZERO. But I am as excited as any of you on the moves within the day in any commodity that I write about, and that's why I actively engage with the commentators. I can choose to be like other analysts here and stay away from feedback forums. I participate to share my insights and also learn what my readers think. Some don't seem to understand that.
Yes,  I believe that you have not position in this market. But my point is the big brother hired you to write this article to misleading others (in this case, to fool others to buy NG when they sell at high price).
today ng up r down
Do not trust the author of this article. The report is very bullish, but let us see how NG went after the report: big up and then much bigger down.
What a UGAZ trap!!
I got raked. Went all in after the report and then walked. Then enormous crash. I lost a ton
 I knew NG would not go over 2.9. But this article came up just before the report and I read it. The bullish report and my thinking of this article made me fear and sell all my DGAZ. I could have held it tight and then make a big profit.
Looks like some profit taking in setting in now.
Once MM is done with profit taking, we should move up hopefully.
how can I invest in this natural gas index? what is the symbol?
NG would be the symbol
thank you for the update. I've tried and my etrade account do not have this index listed
Whoa! The EIA reported a 34 bcf build vs the 45 expected by the market. Looks like the bulls were right. I think we might actually be headed for $3.
That what I thought and went all in ugaz and lost a months worth of income in an hour. Just gonna hold now until 3 I think. It's bullish. Mms can't resist to scare poor people out to then rocket it like they did last year.
Open Interest seems heavy on the puts side of LNG Jan and Feb Futures.
which is usually bullish
Change happens fast. New information available gives people a different outlook.
Thanks, Nathaniel. Appreciate your views.
Thanks for the analysis and thanks for putting these cult members in their places. No appreciation for time, hence their belligerant ranting..
Thank you.
You wrote and anticipated two weeks ago that the rally will be only next year. Now you say something completely different. This is not consistent, easy to find reasons for past price action
And I do appreciate Baranis analysis, it is the only one here concerning NatGas
If you've been a trader long enough -- and I believe you have -- you ought to know that these markets move sometimes at a whim and the price action might often be incongruent with predictions. The underlying arguments in an analysis should often be defended by its author as they represent conclusions over medium- and longer-term study. Yet, I write a weekly column on gas and my readings are as good as the weekly weather forecasts that are publicly available. As we all know, weather can change at a whim, and this year's swings that have brought the early October cold/November impending freeze have caught out many analysts. We are hostage to the natural elements, you must understand. Natgas is one of the most difficult markets to trade and the one who has consistently won will admit that some of the biggest fortunes were made on a gut hunch that turned out to be fortunate. Ask John Arnold of Centaurus. Or Brian Hunter of the doomed Amaranth. They went opposite ways because of weather.
You are right! And again I do apreciate your analysis. I am more of a technical analyst and I saw a H&S formation bottom (after a H&S top in mid September). Therefore i was long from 2.26 and made good money. Your analysis just made me worry, but I do learn from it as well, so keep it up!
what is your target @barani krishnan
I still think 2.80 is a good support, unless the injection comes in above 50 bcf. Then a test of that level may happen again.
You are kidding yourself if you think $3+ is coming... a Short term cold front will not offset record NG production or inventory for any long period of time..  when temps moderate again..as they are expected to do by end of Nov.. a drop down to $2.50 is coming.
Jim, you might be shorting the stuff, and I understand if you want it to go down. I have no bias here. The $3 projection is from some who are betting on the inherent strength of a market that's gone up 25% in two weeks. I understand that these things are volatile. But given the herd mentality in many markets -- just look at Wall Street now -- I tend to agree with their bullish projections.
NatGas’ will dip before the rip.
As we are seeing now. Thank you.
opposite way as you mentioned "bull" again .... what a coincidence
I'm going to tell you this once and I'm not going to repeat myself. All information in this story, as well in others that I write, are correct at the time of publication. As analysts, we study trends over a week or longer, and the fundamentals/animal spirits, in a market to put together our conclusions. The sheer cold forecast for November, after October's early chill, has been the driver for this market. Of course, in any given day, there are price fluctuations. But the overall theme/drivers should hold. I've noticed that you seem to be relishing in finding fault in our work rather than following the counsel of the people we quote. All the sources here -- Shelton, Myers and Chirichella -- have more than 20 years of experience tracking natural gas. Also, October was the first blockbuster month for natural gas this year and now November looks to follow or exceed that based on the weather forecasts. Be patient if you wish to learn anything at all. That's my advice to you.
In case you miss what I said below: I don't buy or sell any securities myself. It's against my principles to invest in a market that you are supposed to write about with bias. But if you're asking whether I'm for or against natgas, then I believe we remain in a broader uptrend, notwithstanding today's profit-taking. Thank you.
Natural gas is the wrong way to fight climate change because it's burning causes even more heat in the atmosphere.
Dietmar, good point, though unrelated to this story.
Not sure if you are questioning Dietmar or asking me how this whole development relates to the economy. Do let me know. Thanks.
I don't buy or sell any securities myself. It's against my principles to invest in a market that you are supposed to write about with bias. But if you're asking whether I'm for or against natgas, then I believe we remain in a broader uptrend, notwithstanding today's profit-taking. Thank you.
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