SMC NatGas Monthly Summary Report
Monthly Summary Report — Feb 1, 2020
Current Situation
A month ago in our Jan. 1, 2021 report, we noted that all anticipated market moves of the just-completed October-December pre-winter timeframe had played out very consistent with our seasonal expectations regarding the final move and meltdown low of $2.238 on December 28. As such, we concluded that we had transitioned into the anticipated first upward swing of the new January-March winter seasonal period and looked for it to be rather enduring.
As the month of January turned out, the actual market movement did begin with a good upward swing, and it was driven by forecasts for a change in the polar vortex that would position arctic air over Canada and have it ready for an arctic outbreak into the U.S. by late January. After this three-week upward swing had gone from $2.238 to $2.899 on January 12, forecasters were unable to spot the weather mechanism necessary to buckle the jet stream and deliver the arctic outbreak to the US. This has had the market dropping back down to $2.414 on January 22 and then consolidating in the $2.414-$2.773 range the past two weeks while weather forecasters continue to watch for the mechanism.
On a continuation basis, the prompt month NYMEX natural gas futures contract opened the calendar month of January at $2.626 and rose to the high of the month at 2.899 on January 12. It then fell to the low of the month at $2.414 on January and ended the month about 8 cents below where it started, at $2.564.
Factor Summary
- Supportive: sup/dem balance; weather
- Neutral: storage; cash; oil; tech considerations
- Negative: seasonal cycles
Conclusion
As winter seasonal movement is turning out, a first winter seasonal swing usually endures until market participants see signs that the coldest part of the winter is past. In most years, this occurs after a good cold spell in January and when the first February warm spell is spotted. This year, we have had an odd situation where we really haven’t seen any good arctic cold in January, but with the polar vortex now poised in Canada, there is still a possibility to see the coldest weather of the winter later on in February.
With this year’s odd weather situation, we are not inclined to completely give up on our first upward swing quite yet and will thus wait another week to see if the arctic push into the Western states in a couple of weeks will be strong and enduring enough to bring our forst swing back to life in dramatic fashion.
As to the coming week, the NYMEX natural gas futures market is currently resting about 12 cents higher than the previous week, at $2.564. This is after a week in which weather forecasts again promoted the possibility of an Arctic outbreak and had the market recovering all the previous week’s losses, only to have it fall back on Friday as both supply/demand and the extent of the arctic cold looked questionable. Looking ahead, it appears we will need to see renewed tightness in the supply/demand and some certainty of a significant Arctic outbreak if the market is to break upward and out from our two weeks of pullback and consolidation.
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