Natural Gas Finds Its Footing

After three straight down days, and down days 7 out of the last 8 trading days, natural gas prices rallied over 2% today for the largest prompt month contract rally since September 18th. 

Of note today as well was that the H8/J8 spread widened for the first trading day since September 27th, as concerns arose again that market tightness and stockpiles right around the 5-year average could lead to a gas shortage with a colder winter. Still, though, H/J remains significantly below where it was previously trading, as traders do not seem to expect that any cold will be sustained enough to shrink gas stockpiles towards dangerous levels into March 2018. 

On the day, we saw the front of the natural gas curve produce the most gains, a reversal from recent trading days where backs had been gradually adding support. Instead, fairly strong cash prices and speculation around long-term cold to end October added support to the front of the strip. 

Bulls found hope on long-range modeling guidance that began to show pieces of a weather pattern that were more indicative of cold risks to close out the month. We noticed this after the overnight runs, and our Trader level subscribers received a text before 7 AM EDT this morning warning that weather would likely support prices a bit more today. 

Yet not all guidance is showing these risks just yet. Yesterday’s runs of the American CFSv2 climate model when broken down on a weekly basis has not shown many cold risks at all through the end of October. 

This is at odds both with other atmospheric indicators and weather models that show an increasing risk for at least some cold moving into the end of the month. As an example, on Day 15 the American GFS ensembles when averaged together show heat lingering in the East but cold weather displacing that heat across the center of the country.