October Gas Reverses Hard Into Expiry

After prices attempted to bounce on cash strength this morning, the front of the natural gas strip sold-off hard into the settle and October contract expiry, with the November contract seeing the largest losses of the day. 

This reversal fit in perfectly with the expectations, the November contract will set a short-term high over the next day and a half on less impressive weather forecasts and looser balance data. We also outlined that 12z afternoon weather model guidance should turn more bearish with heat late Week 2 into early Week 3. 

This played out well, with more warm risks increasing in the long-range on model guidance which the Climate Prediction Center picked up in their long-range update today. 

Our intraday Note of the Day highlighted these warmer long-range risks as well as the latest balance dynamics that we saw increasing bearish risks after the cash bounce this morning. 

We had been warning since last week to not buy some of the forecasts for significant cold and elevated heating demand in the first half of October, and now models have clearly trended more towards our ideas. Even the CFSv2 climate model finally began easing back on some of the cold risks in October today compared to its October temperature anomaly forecast from the last couple of days. 

Today’s reversal also reversed what had been a very significant rally in the February/March G/H spread, though that spread still sits far above where it did previously. 

Traders are now bracing for tomorrow’s EIA print, which is likely to show a far smaller injection than was reported last week. We saw much tighter power burns last week, and temperatures were far above average across the country resulting in above average cooling demand.