SMC NatGas Weekly Summary
Summary for Week Beginning Feb. 14, 2021
Current Situation
In our last report dated Feb. 7, we noted that the NYMEX natural gas futures market was resting about 30 cents higher than the previous week, at $2.863. This was after a week where weather forecasts finally locked onto the first severe arctic outbreak of the winter and had the market rocketing from $2.564 to a high watermark of $3.057 Friday morning. From a seasonal standpoint, we considered that we were still in our anticipated first upward swing of the January-March winter season. Looking ahead, we noted that weather-inspired rallies like this one tend to peak as the coldest air arrives in Chicago or New York, and as such we looked for it to have peaked by February 12.
As to how the latest week turned out, the market began the week with a pullback from the $3.00 area to the $2.75 area as weather models began to show the arctic outbreak affecting the middle of the U.S. much more than the heavily populated northeastern U.S. However, it recovered midweek back to as high as $3.045 as models still showed the event as very cold and settling in for at least a week. Then, with the EIA storage report coming in bearishly 10 Bcfs below expectations and late week forecasts indicating an end to the arctic outbreak by about February 21, the market ended the week with consolidation and a relatively neutral close at $2.912. Seasonally, the high watermark of our first upward swing of the winter season remains the $3.057 from February 5.
To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about six cents higher than where it left off at $2.909. It then fell to the low of the week of $2.741 on Wednesday morning. It rose to the high of the week on Thursday morning at $3.045 and fell back somewhat again to close the week about five cents higher than the previous week, at $2.912.
Factor Summary
- Supportive: supply and demand balance; cash
- Neutral: storage; weather; oil; tech considerations
- Negative: seasonal forces
Conclusion
As winter seasonal movement is turning out, at this point, we are considering that our expectations and actual movement are generally in line thus far. Essentially, the market has initially engaged in a first upward swing and this is playing out with an initial three-week upward move of 66 cents from $2.238 (December 28) to $2.899, then a two-week pullback to $2.414, followed by another move the past two weeks up to as high as $3.057 on February 5. This three-part movement was first influenced by the bullish shift in the polar vortex. The two-week pullback occurred on doubts that the cold would ever be delivered into the U.S. And the last two-weeks to the upside occurred as weather models finally locked onto a severe arctic outbreak. In summary, we consider that we’ve had an 82-cent first upward wave that has been primarily affected by weather.
As to when our first upward wave will peak, in our last report, we said that historically, rallies that are influenced by an arctic outbreak are most apt to reach their peak right before the coldest arctic air hits a metropolitan area such as Chicago or New York. Thus, with the coldest air expected Monday, February 15, we look for the high to be in no later than that date and actually think the highest point may already have occurred at $3.057. As of this writing here on the afternoon of Saturday, Feb. 13, the CPC 8-14 day forecast shows a nice warming trend, which is conducive to a pullback move.
As to the coming week, the NYMEX natural gas futures market is currently 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 down toward the Gulf of Mexico. With the lobe not looking to affect the heavily populated east coast nearly as much as the middle of the country, the market was not quite able to extend beyond the $3.057 high watermark of the previous week. Looking ahead, unless another lobe of arctic air appears in the forecasts, we look for the market to begin pulling back to some degree. As to all factors affecting natural gas futures, please see “Factory Summary section above.
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