Short position holders in the natural gas market learned on Monday that it is going to be a very long winter as prices exploded higher. The market gained nearly 8% in Monday's session as a deep cold front extends across much of the U.S. marking one of the most volatile starts to winter in the history of the natural gas market.
Unseasonably cold temperatures and the likelihood for the first storage withdrawal of the winter 14-15 were the primary culprits behind yesterday's strength.
The latest 6-10 and 8-14 day NWS forecasts released yesterday afternoon showed more below-normal temperatures than the previous forecasts, another supportive feature for the market.
Prices are down slightly this morning as traders digest yesterday's sharp gains.
Technically, the market has moved back toward the upper end of the past 4 month range at the 4.250-4.300 level basis the December 14 contract. Sustained cold weather and a rapid draw down in storage similar to 2014 is needed to break the market out to the upside from this range. Recent weather demand looks like this will be a strong possibility this winter.
However, given the 3,600+ Bcf of gas currently in storage and record high production surpassing 70 Bcf per day, there will be plenty of gas available for this winter regardless of winter demand.
Longer term, the second and final seasonal low for 2014 has been set. The next opportunity to extend coverage on price weakness isn't expected until March/April of 2015. Focus now should be on completing all hedging coverage for winter 14-15 and preparing for even more price volatility.
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