SMC NatGas Weekly Summary

Summary for Week Beginning Jan. 17, 2021

Current Situation

In our last report, dated Jan. 10, 2021, we noted that the NYMEX natural gas futures market rested about 16 cents higher than the previous week, at $2.70. This was after a week where it opened about 9 cents higher Sunday night, at $2.626. It then headed even higher to $2.77 on Wednesday, before a somewhat bearish storage report stifled additional upside thereafter.

 

From a seasonal standpoint, we said that we were two weeks along in our anticipated first upward swing of the January-March winter season, with it having risen 53 cents, from $2.238 on December 28, to as high as $2.77 on January 6. Looking ahead, we said that additional progress in our first upward market swing was becoming dependent on continued shifting in weather models toward arctic cold.

Last week, weather models continued to show evolution in the polar vortex and locked onto an arctic intrusion in the Northwest and upper plains by around January 23. This was enough to initially boost the market higher by about 13 cents to as high as $2.899 on Tuesday. However, as the week progressed, temperature forecasts were unable to show the arctic cold extending much below the far northern states. Consequently, the market was unable to return to Tuesday’s high watermark. After several days of choppiness, it actually fell back to close the week in a lackluster manner just below the weekly midpoint at $2.737. From a seasonal standpoint, our first upward swing of the January-March winter season progressed somewhat higher but appears to be losing momentum.

To summarize last week, the prompt month natural gas futures contract opened the week about 10 cents lower than where it left off at $2.60. It fell to the low of the week on Monday morning at $2.589. Then, it rose to the high of the week on Tuesday morning at $2.899. Finally, it fell back to close the week about 4 cents higher than the previous week, at $2.737.

Factor Summary

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

Conclusion

In the Jan. 10 report, we addressed the specifics of our first upward market swing. We noted that while the evolution in weather mechanisms was continuing as forecast, models had not yet locked onto a definite arctic outbreak. As such, there was room for more upside should models eventually indicate some enduring arctic cold. On the other hand, if such definite cold remained elusive, we looked for some downward, market retracement.

At this point, the shift in weather mechanism continued to remain on track this past week. It was enough to lift our first upward market swing by 13 cents, to $2.899 on Tuesday morning. Thus, our first upward swing of the January-March winter season has now endured three weeks. It has extended by about 66 cents, to as high as $2.899. However, weather models could not lock onto a jet stream configuration that would deliver a definite, arctic outbreak deep into the U.S. After Tuesday, the market ran out of steam and reverted to choppy consolidation for the remainder of the week. In line with last week, our first upward swing appears to be losing upward momentum. It may be facing exhaustion without additional weather support.

This week, the NYMEX natural gas futures market is currently resting about 4 cents higher than the previous week, at $2.737. This after a week where the market opened the week about 10 cents lower at $2.60. It then headed sharply higher to $2.899 on Tuesday morning. It then ran out of steam and drifted back to close on Friday just below the weekly midpoint. We anticipate temperature forecasts and the supply/demand (see weekly storage report) to be most influential on market movement. As to all factors affecting natural gas futures, please see Factor Summary section above.

For questions or comments, please feel free to call SMC at 501-240-6700. We are also happy to provide interested hedging and speculative entities with a trial of our full body of work.

 

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 of 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.

Note:  Charts included in this report were obtained and used with permission from Barchart.com. Copyright protection is applicable. Any distribution outside the purchasing entity is prohibited without prior arrangements with SMC.

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