NG Sun-Mon
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Started by WxFollower - Dec. 16, 2018, 1:58 p.m.

 I know NG had a huge down week last week and some may be looking for a bounce, which is always possible at some point after a huge drop especially with storage still on the low side, but I see nothing wxwise yet to facilitate that bounce. Models, if anything, have warmed even more since Fri for weeks 1-2 though I haven’t yet calculated the supposed warming to be sure. The forecaster I follow is slightly warmer today vs Fri. The forecasts and models remain warm dominated through week 2 even with cooling in week 2 in the NW US.

  So, knowing all of this as well as supposed further increases in production as evidenced by recent bearish EIA weekly reports, my guess is a further drop at least at the open. But we’ll see. I’m flat as usual. So, I’m not talking my book.

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Re: NG Sun-Mon
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By metmike - Dec. 16, 2018, 2:31 p.m.
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Agree Larry

Added this graph near the top of the posting because the picture tells us why natural gas prices have been so volatile early in the heating season.

Gas in storage has been around 15 year lows:

Working Gas in Underground Storage Compared with Five-Year Range

Re: NG Sun-Mon
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By WxFollower - Dec. 16, 2018, 4:01 p.m.
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 Knowing that the vast majority in the market won't dive into this or even care about this and that the preset algos likely won't be affected much, I just did a comparison of HDD for Fri 12Z (call it F) vs today at 12Z (call it S) for both GEFS and EPS:


1. GEFS: For 12/17-29, S is 11 warmer even though S days 12-13 (12/28-9) are a combined 3 cooler than day F days 14-15. Why is it warmer? Because S's 12/23-7 is 14 warmer than F's. So, 14-3 = 11 warmer.


2. EPS: For 12/17-28, S is actually 5.5 colder (spread out).


3. So, the average of the two is ~3 warmer S vs F. So, the slightly warmer forecast I saw for weeks 1-2 makes sense.


3. F: GEFS for days 1-14 was 25 colder than EPS

    S: GEFS for days 1-14 now only 7 colder than EPS.

 So, GEFS and EPS got much closer together during weekend since GEFS got significantly warmer while EPS got slightly colder. 

  So for days 1-14, GEFS 1-14 is now 52 HDD warmer than normal while EPS is 40 warmer than normal. So, GEFS is still 12 colder than EPS and they now average 46 warmer than normal vs averaging 39.5 warmer than normal F.


**Corrected for typos near the end**



By metmike - Dec. 16, 2018, 7:42 p.m.
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Thanks for the stats Larry.

As we suspected the open was lower. In fact, a massive gap lower of something like $1,700/contract below  the 4pm close............which was on the lows for Friday.

The market was expecting this potential which explains the selling pressure late Friday into the close. 

This gap will be a downside break away gap if the weather forecast does not turn colder pretty soon. 

However, we are $10,000/contract lower than a week ago at this time. Even for natural gas, that's a big move in such a short period of time.

The low so far has been 3.607, shortly after the open. The high was 3.652. 

Re: NG Sun-Mon
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By WxFollower - Dec. 16, 2018, 8:15 p.m.
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 I'm guessing this rise of a few cents off the bottom is largely dead-cattish.

By metmike - Dec. 16, 2018, 8:49 p.m.
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Probably you are right Larry. 

If the models don't turn colder soon, there's a good chance that we will break below these lows............but how high is the bounce first?

The one thing to watch out for now is that northern and central Canada are likely going to get loaded up with some very frigid air, possibly some cross polar flow involved as the month goes on. 

Assisting in that is the fact that the mild, zonal flow in the US, is keeping the cold locked up much farther north..........where the sun angle is weak/low to no sun in the highest latitutes. 

If/when the pattern shifts to more meridional(north to south) the reservoir/pool of bitter cold will be pretty deep from the many weeks of it building up much farther north.

There is no weather rule that states that this cold will eventually come down here. We can sustain the current mild pattern indefinately as long as the jet stream continues with  a zonal configuration.

We will also have managed to get a couple of very mild weeks in under our heating season belts which will help to cut the deficit with last year a bit the next 2 weeks and also lessen the risk of ending the heating season with precariously low storage.

That risk, a month ago was high enough for the market to trade near $5. In fact, a week ago the extended maps looked extremely cold at the end of 2 weeks and we were above $4.6. 

$10,000/contract is  a heck of a drop since then but it would not be shocking to be close to $3 before the month is over if the outlooks stay mild..........or back close to $5, if this massive pool of frigid air is taking aim, bodily at the heart of the high population centers of the US with sustainability.



By metmike - Dec. 16, 2018, 8:52 p.m.
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Here is the bar graph of previous Winter demand, with the EIA projection from a month ago. Not sure if its been updated. 

Right now EIA projects winter heating demand at about 6.6 TCF, and end of season inventories at 1.37 TCF on March 31st. Heating demand over the last 28 winters ranged from 5.7 TCF to 7.3 TCF, averaging 6.4. Here's the history from EIA:

By metmike - Dec. 16, 2018, 8:54 p.m.
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Here is the bearish EIA report from last Thursday:

-77 bcf


The deficit with last year is up to 722 bcf and with the 5 year average is 723 bcf.

                                        

Working gas in underground storage, Lower 48 states Summary textCSVJSN
  Historical Comparisons
Stocks
billion cubic feet (Bcf)
 Year ago
(12/07/17)
5-year average
(2013-17) 
Region12/07/1811/30/18net changeimplied flow  Bcf% change Bcf% change
East732  752  -20  -20   857  -14.6  856  -14.5  
Midwest885  914  -29  -29   1,037  -14.7  1,018  -13.1  
Mountain160  168  -8  -8   214  -25.2  207  -22.7  
Pacific238  253  -15  -15   306  -22.2  332  -28.3  
South Central898  905  -7  -7   1,222  -26.5  1,224  -26.6  
   Salt271  263  8  8   360  -24.7  352  -23.0  
   Nonsalt627  642  -15  -15   862  -27.3  872  -28.1  
Total2,914  2,991  -77  -77   3,636  -19.9  3,637  -19.9  

By metmike - Dec. 16, 2018, 8:54 p.m.
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These were the 7 day temperatures for that report:

http://www.cpc.ncep.noaa.gov/products/tanal/7day/mean/20181207.7day.mean.F.gif

By metmike - Dec. 16, 2018, 8:56 p.m.
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Here is the 7 day period, ending this last Friday for the next EIA storage report coming out this Thursday at 9:30pm.

http://www.cpc.ncep.noaa.gov/products/tanal/7day/mean/20181214.7day.mean.F.gif

By metmike - Dec. 16, 2018, 10:51 p.m.
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NG has managed to fill close to half of the gap lower, no huge surprise as, typical of ng, it over reacts in spikes and the massive gap lower was likely an over reaction to the downside. 

However, if we managed to fill this gap, huge speculative IF(which would probably only happen if the overnight models all made a big cold change during week 2), then we would have a gap and crap technical formation.

Basically, this is an exhaustion signal, when the market gaps higher or lower in the same direction of a powerful move(in this case, down $10,000 from a week ago and taking out the November lows on Friday) from a peak in the buying or selling, sometimes panic type buying or selling at the market to get in or out at any price vs waiting for a better price.

When that gap is filled, it suggests that the news or cause of the extreme buying or selling has been dialed in and additional new news is unable to keep the move going in the same direction. Or even better yet, the new news has changed to being the opposite of what caused the gap.

That said, its hard to imagine mild overnight maps and us filling the gap because the longer the mild weather lasts, the more pressure it can put on natural gas prices.........and the heating season still has months to go. 

But this is natural gas. As Larry questioned  last week, when it was sharply higher at this time/day.

As I mentioned a week ago, volume here on Sunday evening is less than 5,000 contracts as of 10 pm central time.

There will be a different breed of large traders that get things hopping early tomorrow morning and day session volume might be 30 times the volume so far(150,000 contracts).

How they decide to trade will be based on the same information known right now(+updated weather forecasts) but they may all get the same idea, as often is the case and pile on in the same direction, which could be different than what small traders tonight have decided to do.

The models overnight will be the most important. 

With the amount of frigid air pooling in Northern to possibly Central Canada during week 2, it would not even have to be a major pattern change to cause the temperature forecast to drastically change. 

A southern stream storm that phases briefly with the northern stream as it moves into  the northern US, then Canada, for instance, if it could latch onto a blob of that very cold air and propel it south, there could suddenly be several days with high heating demand that were not there before.


It could go back to mild after that but still be bullish for a day or 2 as the market focuses on the added heating demand for those colder days.


By metmike - Dec. 17, 2018, 7:35 p.m.
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Closing comments from Natural Gas Intelligence:

Natural Gas Futures Extend Steep Losses on Bearish December Weather Outlook

     5:32 PM    

Just one trading day after January natural gas prices took out critical support at the $4 level, the prompt month on Monday set its eyes on $3.50 as weather outlooks indicated it could be after the new year begins before any truly cold air returns to the Lower 48. 

By metmike - Dec. 17, 2018, 8:04 p.m.
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For the weather affecting natural gas prices, go here:

https://www.marketforum.com/forum/topic/19801/


Interesting battle going on right now for the weather.

The GFS and European models keep it very mild thru 2 weeks.

However, the Canadian ensembles at 12z today are back to having half of the solutions turning the US frigid during week 2. This model has performed with the least amount of skill in the last couple of weeks and has repeatedly error-ed from being too cold in week 2.

The very late afternoon update of the European model 30 day outlook turns it VERY cold for the high population centers around New Years Day.  See the maps at the link above.

The mild pattern in the US right now and in the mid latitudes is allowing frigid air  to build up in the highest latitudes.


If/when the pattern shifts to meridional(north to south) there will be a large pool of bitter cold that will be close by to tap into.

When will that happen?

Good question.