Natural gas prices remained well sold for a 4th day on Tuesday as weather forecasts continue to suggest above-normal temperatures across much of the U.S. into the middle of December.
The market has fallen sharply lower from the late-November highs with the winter 14-15 strip (January 15-March 15) currently at 3.850 trading down 14.5% from the November high. The strip does, however, remain well above the 3.686 October low.
The summer 15 strip (April 15-October 15) currently trading at 3.585 is very close to the late-October 3.519 low and could possibly fall to a new all-time low ahead of winter.
Sellers have failed to learn their lesson about pressing the natural gas market to new lows ahead of winter. The market rallied over 25% from the late-October low in just 10 trading days as weather forecasts turned colder than expected in November. That type of price action is likely a signal of things to come during this upcoming winter.
In 2013, the market fell to a new low for the year in early-November only to rally higher by 35% over the next 5 weeks into the middle of December. The market subsequently setback in January 2014 as weather demand eased falling to a 3.953. ut by the end of the month it was trading up to 5.750, an increase of 45%. And by mid-February as the market topped out for the year, the spot contract traded up to a 6.493 high gaining 2.550 or 65% from the November 2013 low.
The point is that the natural gas will likely continue to be incredibly volatile this upcoming winter.
In a normal winter, the U.S. uses roughly 2,000+ Bcf of natural gas. In 2013, the U.S. consumed just over 3,000 Bcf during winter. Therefore, a normal versus colder winter similar to 2013 could leave a variance of up to 1,000 Bcf of gas in storage at the end of March 2014.
This is why winter forecasts and actual storage withdrawals over the upcoming 4 months are so important. If winter usage is normal, trade back toward the lower-3.000 area during the early months of 2015 would be expected.
But if winter demand is higher than normal, another explosive winter rally could unfold leaving the market in a storage deficit similar to 2013 to the end of March 2014.
It will be an interesting winter to watch.
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