SMC Weekly Summary

Summary for Week Beginning Jan. 11, 2021

 

Current Situation

In our last summary report dated January 3, 2021, we noted that the NYMEX natural gas futures market was resting about 2 cents higher than the previous week, at $2.539, after a week where the market opened about 21 cents lower, at $2.311, and put in a significant low at $2.238 on mild forecasts, before a bullish shift in forecasts rallied the market back to $2.539 and a 2-cent higher close over the previous week. From a seasonal standpoint, we cited seasonal timing and the late-week rally and concluded that our December meltdown phase had reached its low point of $2.238 on December 28, and that we had begun a transition into an anticipated first upward swing of the January-March winter seasonal period.

 

As to how the latest week turned out, weather forecasters continued to cite changes in the polar vortex and other mechanisms that would serve to increase the odds of arctic weather beyond mid-month.  With such continued bullish forecasts, the market gapped higher by about 9 cents, to open the week at $2.626, and headed even higher to $2.77 before Thursday’s EIA storage report. The reported storage withdrawal was somewhat below expectations, and with the market unable to extend the high-water mark after the report, the market simply consolidated the remainder of the week and closed 7 cents off the new high, at $2.70 to end the week. Seasonally, the market now looks to be well along into our anticipated first upward swing of the new January-March winter season.

To summarize last week’s market activity, the prompt month natural gas futures contract opened the week about 9 cents higher than where it left off at $2.626 and fell to the low of the week on Monday morning at $2.566. It then rose to the high of the week on Wednesday morning at $2.77 and closed the week about 16 cents higher than the previous week, at $2.70.

Factor Summary

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

Conclusion

In last week’s 1/3/21 report, we made the assumption that our December meltdown phase concluded on December 28 at $2.238 and that we had transitioned into an anticipated first recovery phase of the new January-March winter seasonal period. We looked for the market to begin the month of January with an attempt to revisit that $2.238 low, but expected such an attempt to hold above this mark.

At this point, we are noting that our thoughts about a first recovery phase of the new January-March winter seasonal period appear on target thus far. Essentially, the market appears to have rallied solidly by about 53 cents off our December meltdown low of $2.238, from December 28 into our first upward swing that has gone to as high as $2.77 last Wednesday, January 6.  The rally has been driven by temperature forecasts indicating weather mechanisms are evolving in a manner that will likely allow for some degree of arctic cold after mid-January. Models have not yet locked onto any specifics of an arctic outbreak, and so we consider there to be room for more upside should models eventually indicate some enduring arctic cold.

As to the coming week, the NYMEX natural gas futures market is currently resting about 16 cents higher than the previous week, at $2.70, after a week where the market opened the week about 9 cents higher at $2.626 and headed higher to $2.77 on Wednesday morning, before a somewhat bearish storage report stifled additional upside thereafter. Looking ahead, we again anticipate temperature forecasts and the supply/demand (as indicated in the weekly storage report) to be most influential on market movement. If the weather models can’t lock onto some definite arctic cold in the next couple of days, we may see the coming week experience some downward market retracement. As to all factors affecting natural gas futures, please see the summary box 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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