SMC Weekly Summary
Summary for Week Beginning 12/20/2020
Current Situation
In our last report dated 12/13/20, we noted that the NYMEX natural gas futures market was resting almost $0.02 higher than the previous week, at $2.591, after a week where the market opened about $0.12 lower, at $2.456. It then dropped to extend our ongoing December meltdown about $0.10, from $2.462 to a new low point of $2.368. It recovered from there on a bullish storage report to the high of the week at $2.63. Looking forward, we said that even with the recovery, we weren’t ready to conclude that our December meltdown phase was complete; continued mild weather could resume the downside.
As to how the latest week turned out, temperature forecasts continued to lack significant arctic cold, but with a weeklong cold snap being stronger than forecast, the market engaged in a little follow through upside of about $0.10 to as high as $2.724 before Thursday’s EIA storage report. The reported storage withdrawal was lower than some of the more reliable estimates, and so the market pulled back by $0.10 on the day. However, it still indicated a pretty tight supply/demand, and so the market ultimately eased back up on Friday to close the week near the high at $2.70 and pointed higher.
Factor Summary
- Supportive: supply/demand balance; seasonal forces; tech considerations
- Neutral: cash; weather; oil
- Negative: storage
Conclusion
We addressed the specifics of our December meltdown phase in our previous report. Essentially, December meltdowns generally continue for as long as weather stays mild or until participants become spooked about the possibility of a pattern shift to cold in January. We also said that even if the remainder of December stayed mild, we’d look for the low of this current meltdown to have occurred by the end of the month. In fact, we were already noting that a modest, late week bounce was indicating some hesitation about much more in downward progress.
At this point, we are noting a second week of modest recovery, and so the question now is whether our December meltdown phase is complete. Last week’s movement featured a $0.09 extension of the previous week’s modest bounce to as high as $2.724 that resulted from a much cooler weather week. But with it still within the seven-week downward trading channel, we consider that our meltdown phase is still intact. Looking ahead, we think it is going to take an outlook for exceptionally mild late-December and early-January weather for the market to resume the downside and have any shot at extending our meltdown phase below its $2.368 low point. Such a mild outlook has not appeared in forecasts as of last Friday.
Looking forward to the coming week, we again look for temperature forecasts to be the primary fundamental factor as to how much lower (if at all) our December meltdown can continue. As we saw the past two weeks, surprising storage numbers and weekly indications in supply/demand can also provide significant influence.
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 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.
