SMC NatGas Weekly Summary

Summary for Week Beginning Feb. 7, 2021

 

Current Situation

In our report dated Feb 1, 2021, we noted that the NYMEX natural gas futures market was resting about 12 cents higher than the previous week, at $2.564. This was after a week where weather forecasts again promoted the possibility of an Arctic outbreak and had the market recovering all the previous week’s losses. It then fell back on Friday as the extent of the arctic cold again looked questionable. From a seasonal standpoint, we were evaluating as to whether we were still in a first upward swing of the January-March winter season or whether we had transitioned into a first downward swing. Looking ahead, we indicated we would wait another week to see if weather models could lock onto an Arctic outbreak and bring our first swing back to life in dramatic fashion.

 

 

As to how the latest week turned out, weather models did, in fact, finally lock onto a good Arctic outbreak that looked to commence on about February 7 and affect the whole continental U.S. for at least a week. This had the market popping about 17 cents to open the week at $2.73. It then rocketed up to $3.005 by Tuesday morning. However, profit-taking ensued, and it fell back to as low as $2.748 before the Thursday EIA storage report. The report was right at expectations and thus relatively neutral. But with the Arctic outbreak still on track and looking stronger, the market took off again after the report to reach a weekly high of $3.057 on Friday morning. Seasonally, we consider that our first upward swing of the winter season has now extended about 82 cents off the late December low of $2.238.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about 17 cents higher than where it left off at $2.73. It immediately fell to the low of the week on Sunday evening at $2.712. It then rose to the high of the week on Friday morning at $3.057 and fell back somewhat to close the week about 30 cents higher than the previous week, at $2.863.

Factor Summary

  • Supportive: sup/dem balance; weather; tech considerations
  • Neutral: storage; cash; oil
  • 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. Essentially, the market has initially engaged in a first upward swing. This is playing out with an initial three-week move of 66 cents from $2.238 (December 28) to $2.899, a two-week pullback to $2.414. That was followed by last week’s rally to as high as $3.057 on Friday. This three-part movement was first influenced by the bullish shift in the polar vortex, and the two-week pull-back occurred when there were doubts that the cold would ever be delivered into the U.S. Last week’s dramatic resumption in the upside occurred as weather models were finally able to lock onto a severe Arctic outbreak for the upcoming week. In summary, we consider that our first upward wave is still ongoing and has been primarily affected by weather.

As to when our first upward wave will peak, historically, rallies that are influenced by an Arctic outbreak are most apt to reach their peak right before the coldest lobe of air hits a metropolitan area such as Chicago or New York. Thus, unless this outbreak ends up being long-term (with additional lobes over 2-3 weeks), we anticipate it will have reached its peak by late in the coming week. We would mention that Friday’s CPC 3-4 week forecast showed temperatures reverting back towards normal for the final 7-10 days of the month. If this begins to verify in the 8-14 day timeframe, this could also serve to pull the rug out from under our current upside progress.

As to the coming week, the NYMEX natural gas futures market is currently resting about 30 cents higher than the previous week at $2.863, 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 all the way to a high watermark of $3.057 on Friday morning. We look for temperature forecasts as most influential in determining how much higher our upward swing will go (see above paragraph). As to all factors affecting natural gas futures, please see summary box.

 

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Note:  Charts included in this report were obtained and used with permission from Barchart.com.

 

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