SMC Weekly Summary

Summary for Week Beginning 12/13/2020

 

In our last report dated 12/1/20, we noted that the NYMEX natural gas futures market was resting 27 cents lower than the previous week, at $2.575 after the market initially extended our second pre-winter recovery a few cents higher to $2.996 Monday morning, only to dramatically fall out of bed on Wednesday morning with mild forecasts, dropping to the low of the week at $2.462 on Friday morning. From a seasonal standpoint, such movement initially served to complete our ongoing second pre-winter recovery move at $2.996 and then initiate our anticipated December wildcard period with a December market meltdown to $2.462.

As to how the latest week turned out, temperature forecasts continued to project unusually mild temperatures in the 6-10-, 8-14-, and 16-30-day periods. As such, the market opened last week 12 cents lower than where it left off and the December meltdown phase continued about 10 cents lower to a low point of $2.368 before Thursday’s EIA storage report. However, the storage report was surprisingly bullish, showing a withdrawal that was 8 Bcfs above expectations at 91 Bcfs, and indicated a bullish shift from the looser supply/demand of the three previous reports. As such, despite continued mild looking forecasts, the market reacted to the bullish report by recovering to close about 2 cents higher on the week at $2.591. With forecasts still showing mild temperatures on Friday, we don’t necessarily think our December meltdown phase has concluded.

Factor Summary

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

Conclusion

At this point, we have just concluded the second week of our December meltdown phase in which the low of the meltdown extended almost another 10 cents from $2.462 to $2.368. Such December meltdowns generally continue to extend lower for as long as December stays mild and until participants become spooked about the possibility of a pattern shift to cold in January. The low of such December meltdowns can ultimately end up being lower than anything we see in the following January-March winter seasonal timeframe, especially if decent cold eventually makes an appearance in January. Looking ahead, even if the remainder of December stays mild, we’d look for the low of this current meltdown to have occurred by the end of the month. Much like the previous week, our most recent week ended with a notable recovery on the apprehension that cooler weather will appear in forecasts over the weekend. As such, we are already noting some hesitation about much more in downward progress.

For the coming week, we look for temperature forecasts to be the primary fundamental factor as to how much (if any) lower our December meltdown can continue. As we saw last week, surprising storage numbers and weekly indications in supply/demand can also provide significant influence.

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