SMC NatGas Weekly Summary

Summary for Week Beginning February 21, 2021

In our last report dated February 14, 2021, we noted that the NYMEX natural gas futures market was resting about five cents higher than the previous week, at $2.912, after a week where an extremely cold lobe of arctic air finally entered the U.S. and began slowly making its way toward the Gulf of Mexico. We noted that the high watermark of our first upward swing of the January-March winter seasonal period remained at $3.057 from February 5. Looking ahead, we noted that the upcoming Monday (February 15) looked to be the coldest day, and so we looked for the ongoing upward swing to peak out by then, with the market beginning to pull back to some degree thereafter.

As to how the latest week turned out, the market initially opened just below the previous $3.057 high watermark, at $3.046, and then headed to new high ground. The cash pricing effects of the severe arctic outbreak did not peak until Wednesday, and so the high watermark of our first swing did not occur until Wednesday, February 17, when prompt futures peaked at $3.316. With weather moderating thereafter, the market fell back to close the week in pullback mode at $3.069.

The weekly EIA storage report was bearishly below expectations with a draw of 237 Bcfs, but this appeared to have little effect on what was already an ongoing weather-related decline. Seasonally, we are assuming Wednesday’s $3.316 was the high watermark of our first upward swing and consider that we are now in the first downward swing.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about 13 cents higher than where it left off at $3.046 and fell to the low of the week on Monday morning, at $2.976. It then rose to the high of the week on Wednesday morning at $3.316 and fell back rather notably to close the week about 16 cents higher than the previous week, at $3.069.

Factor Summary

  • Supportive: storage; supply/demand balance; cash; oil
  • Neutral: n/a
  • Negative: weather; seasonal forces; tech considerations

As to the winter seasonal movement, weather events and timing thereof are playing out oddly this year. Essentially, the first upward market swing has occurred as anticipated, but it has been prolonged and amplified by a significant arctic outbreak that has emerged very late in the mid-winter period. As such, our three-part, first upward swing has now extended a total of $1.08, from $2.238 (December 28) to $3.316 last Wednesday, February 17. In context with our original expectations, we are assuming that our first upward swing has peaked at $3.316, and that with milder weather entering the picture next week, we are going with the idea that we have transitioned into our anticipated first downward swing.

The key question at this point is whether the pullback that started late last week will continue to prevail or whether market participants get rattled by what will be an extremely large storage withdrawal this coming Thursday and send the market back up toward $3.316 and perhaps beyond.

As to the coming week, the NYMEX natural gas futures market is currently resting about 16 cents higher than the previous week, at $3.069, after a week where the market punched upward to a new high of $3.316 on the peaking arctic weather before falling back late in the week as the arctic weather began dissipating. Looking ahead, unless forecasters spot another arctic outbreak on the horizon, we will look for the market to continue its late week pullback.

As to all factors affecting natural gas futures, see “Factory Summary” above.

 

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Disclosure: The risk of loss in trading futures and/or options is substantial. Past performance is not indicative of future results. The information in this message derived from third-party sources is believed to be accurate and reliable; Coquest does not guarantee the accuracy or completeness of the information. Opinions expressed in this material are subject to change without notice. This report should not be interpreted as a request to engage in any transaction of futures, options, and/or OTC derivatives. The information contained in this material is not to be relied upon in substitution for the exercise of your independent judgment. Seek independent financial, tax, legal, and accounting advice from your own professional advisers, based upon your particular circumstances.

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