SMC NatGas Weekly Summary
Summary for Week Beginning March 14, 2021
Current Situation
In our last report dated March 7, we noted that the NYMEX natural gas futures market was resting 7 cents lower than the previous week, at $2.701, after a week where the market initially recovered from the mid $2.70s to $2.887, only to have a surprisingly low weekly storage withdrawal cause the market to give up its gains and decline to lower levels into the upper $2.60s to end the week. Seasonally, we noted that we had seen two very distinct swings thus far in our January-March winter season, with the first being upward to $3.316 and the second being down to as low as $2.681. Looking ahead, we looked to the supply/demand to be the primary influence on the market with weather forecasts only a secondary influence.
In our last report dated March 7, we noted that the NYMEX natural gas futures market was resting 7 cents lower than the previous week, at $2.701, after a week where the market initially recovered from the mid $2.70s to $2.887, only to have a surprisingly low weekly storage withdrawal cause the market to give up its gains and decline to lower levels into the upper $2.60s to end the week. Seasonally, we noted that we had seen two very distinct swings thus far in our January-March winter season, with the first being upward to $3.316 and the second being down to as low as $2.681. Looking ahead, we looked to the supply/demand to be the primary influence on the market with weather forecasts only a secondary influence.
As to how the latest week turned out, the 6-10 and 8-14 day temperature forecasts initially showed a cool wave extending across the country, which had the market rallying slightly from its lower open of $2.691 to $2.734 on Monday morning. However, the weak storage draw from the week before continued to prove influential, and the market dropped into new low ground to as low as $2.618 before Thursday’s EIA storage report. Like the week before, the weekly EIA storage report was surprisingly bearish, with the withdrawal coming in 21 Bcfs below expectations at 52 Bcfs. While the initial reaction was neutral, the market proceeded to a new low ground of $2.584 on Friday to end the week. As such, our first downward wave of the winter season has now extended 73 cents, from $3.316 to $2.584, since it became operational on February 17.
To summarize last week’s market activity, the prompt month natural gas futures contract opened the week 1cent lower than where it left off at $2.691 and rose to the high of the week on Monday morning at $2.734. It then fell to the low of the week on Friday afternoon at $2.584 and closed the week about 10 cents lower than the previous week, at $2.60.
Factor Summary
- Supportive: storage; oil
- Neutral: supply/demand balance; cash
- Negative: weather; seasonal forces; tech considerations
Conclusion
As to how the January-March winter seasonal movement is turning out, we have seen two very distinct swings thus far. The first upward swing began off the December 28 low of $2.238 and peaked fairly late on February 17 after a $1.08 move to $3.316. The first downward swing began off the February 17 high of $3.316 and has now extended as much as 73 cents to as low as $2.584 on Friday, March 12.
In March 7 report, we were questioning whether the sideways movement of the previous week would just end up being consolidation before our first downward swing continued lower or whether it would turn out to be bottoming before a reversal into an anticipated second upward swing. As it turned out, the market did continue lower, with a decisive break below $2.70 and an additional downside to as low as $2.584 by the end of the week. As such, we consider the first downward swing as still being operational.
Very notably, the last two weekly storage reports have indicated a surprise loosening in the supply/demand here as we wind down winter. This was something that has not been expected. As such, the market has slowly ratcheted down a little further to $2.599 the past two weeks as market participants stand back to see if this is, in fact, the new trend. Basically, if the balance tightens up again in upcoming reports, the market will likely take off again. If it continues to look loose, it will likely fall back more.
As to the coming week, the NYMEX natural gas futures market is currently resting 10 cents lower than the previous week, at $2.60 after a week where the market initially recovered from the upper $2.60s to $2.734, only to have a second week in a row with a surprisingly low weekly storage withdrawal that had the market dropping off to $2.584 and a weak close on Friday. Looking ahead, we again look to the supply/demand to be the primary influence on the market with weather forecasts a secondary influence. As to all factors affecting natural gas futures, please see the summary box above.
To send a question to the author, or to learn more about this topic, click here.
For assistance with brokerage or hedging services, please click here.
The market recommendations contained in this letter represent the general opinions of the author and are not considered specific for any of the readers receiving our work. There is no guarantee a successful outcome on any actions taken by readers. Such opinions are subject to change without notice. Principals and employees of SMC may or may not trade in the commodities discussed in this letter, taking positions similar or opposite to the positions discussed herein. The information contained in this letter is taken from sources we believe to be reliable, but it is not guaranteed by us as to the accuracy or completeness thereof and is sent to you for information purposes only. Commodity trading involves risk and is not for everyone. Copyright protection is applicable. Any distribution outside the purchasing entity is prohibited without prior arrangements with SMC.
