SMC Monthly Summary Report
Monthly Summary — December 1, 2020
Current Situation
In last month’s summary (11/1/20) report, we noted that the first month of our October-December pre-winter timeframe had played out very consistently with our seasonal expectations of a post expiration drop in the new prompt month November contract of over $0.40 to as low as $2.373 on October 2. Then, a four-week long first pre-winter recovery phase in prompt month pricing that fed on cool weather and notable supply/demand tightening to cover $1.02 to a high-water mark of $3.396 on October 30. Looking ahead to November, we considered the developing bearish temperature forecasts for November, and with our thoughts that the tightness in the supply/demand would fade with some better weather demand, we concluded that our anticipated November pullback phase would eventually get underway.
In last month’s summary (11/1/20) report, we noted that the first month of our October-December pre-winter timeframe had played out very consistently with our seasonal expectations of a post expiration drop in the new prompt month November contract of over $0.40 to as low as $2.373 on October 2. Then, a four-week long first pre-winter recovery phase in prompt month pricing that fed on cool weather and notable supply/demand tightening to cover $1.02 to a high-water mark of $3.396 on October 30. Looking ahead to November, we considered the developing bearish temperature forecasts for November, and with our thoughts that the tightness in the supply/demand would fade with some better weather demand, we concluded that our anticipated November pullback phase would eventually get underway.
As the month of November turned out, actual market movement continues to be very consistent with our October–December pre-winter seasonal expectations. The November pullback got underway as anticipated, and with November staying mild and the supply/demand yielding much of its tightness, the November pullback endured much longer and extended much further than we anticipated. Essentially, it fell $0.87 from $3.396 to a low of $2.525 on November 19. Then, with temperature forecasts showing more seasonal weather for early December, our anticipated second pre-winter recovery phase got underway and extended to a high-water mark of $2.996 on November 30.
On a continuation basis, the prompt month NYMEX natural gas futures contract opened the calendar month of November at $3.374 and rose immediately to the high of the month at $3.393 on November 2. It then fell to the low of the month at $2.525 on November 19 and regained much of its losses to close the month at $2.882. Seasonally, we have completed anticipated, pre-winter movement consisting of a first recovery phase, a November pullback phase, and a second recovery phase. Such moves have been relatively large with the timing and duration of each move playing out very typically.
Factor Summary
- Supportive: supply/demand balance; seasonal cycles
- Neutral: cash; weather; oil
- Negative: storage; tech considerations
Conclusion
In the 11/29/20 report, we focused more specifically on the then ongoing second pre-winter recovery phase, and we emphasized that second recovery phases can be enduring or brief depending on December weather. We concluded that unless temperature forecasts started picking up something colder or could extend the cooler outlook beyond mid-month, we deemed it possible that the current high-water mark of $2.963 could stand as the high of our second pre-winter recovery phase.
At this point, it appears that our thoughts from last week were on course as the second pre-winter recovery initially extended just a little higher, to $2.996 on Monday, November 30 but then lost its footing on Wednesday morning to drop over $0.53, to a low of $2.462 Friday morning. We attribute this drop to the inability for 6-10 and 8-14 day and 3-4 week weather forecasts to pick up on any arctic air, and to a surprisingly low reported storage decline and continued associated bearish shift in the supply/demand. As such, we are now concluding that our second pre-winter recovery topped out at $2.996 on November 30, and that we have entered the anticipated December wildcard period when December weather tends to either extend a second recovery well into December or produce a meltdown. At this point, it appears that the meltdown alternative is operational.
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