SMC NatGas Monthly Summary Report
Monthly Summary Report — March 1, 2021
Current Situation
A month ago in our Feb. 1 monthly report, we had considered that an anticipated first upward swing of the January-March period had definitely become operative with a rally from $2.238 on December 28 to a high watermark of $2.899 on January 12. The rally was driven by a shift in the polar vortex that moved arctic cold into position for a severe arctic outbreak. However, with the mechanism to deliver the cold still lacking, this first upward swing stalled out and spent the last two weeks of January consolidating in the $2.414-2.773 range. As such, we ended the month of January trying to determine whether our first upward swing was complete at $2.899 on January 12 or whether it had just paused before proceeding higher.
As the month of February turned out, the mechanism to deliver the arctic air was spotted immediately on February 1 and the market popped to open the month at $2.73. It began moving up to new high ground through the upper $2s to finally reach a high watermark of $3.316 on February 17. This high point occurred as the arctic outbreak reached its maximum effect on cash pricing. As such, we considered that our anticipated first upward swing of the winter season had resumed after a late-January swoon and had gone on to achieve a total of $1.08 in upside. Then, with a much milder outlook for late February and early March, the market has transitioned into what we consider to be a first downward swing that has now declined to as low as $2.697 on February 26.
On a continuation basis, the prompt month NYMEX natural gas futures contract opened the calendar month of February at $2.73 and rose to the high of the month at $3.316 on February 17. It then fell to the low of the month at $2.679 on February 26th and ended the month at $2.771.
Factor Summary
- Supportive: storage; supply/demand balance; oil
- Neutral: cash
- Positive: weather; seasonal cycles; tech considerations
Conclusion
As to how winter seasonal movement is turning out, weather events and the timing thereof are playing out oddly this year with the coldest part of the winter not occurring until mid-February. Thus, what we are calling our first upward swing peaked fairly late on February 17 after a $1.08 move to $3.316, and we consider that we are now in the first downward swing that has fallen about 62 cents, so far, to a low point of $2.697 on Friday, February 26.
As to how much further our first downward swing will go, it has actually extended somewhat below the $2.75 area that we thought might be its low point. Essentially, it has made it to $2.697 on some very mild 6-10 and 8-14 day forecasts. As such, we view this as something that could end at any time. If mild forecasts continue, it could go a little further, but otherwise, we would expect some bottoming movement to begin or even a sharp reversal (if cooler weather begins to appear in the forecasts).
As to the coming week, the NYMEX natural gas futures market is currently resting about 30 cents lower than the previous week at $2.771, after a week where the market opened at $2.934 on Sunday evening and headed lower in a fairly concerted manner to a now low point of $2.697 on Friday. Looking ahead, we think the market is close to being exhausted to the downside, but consider that a little more in downside may be possible if 6-10 and 8-15 day forecasts stay extremely mild looking.
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