NG reluctant to go lower.
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Started by MarkB - Nov. 8, 2019, 11:31 a.m.

Must still be some who think it's gonna freeze worse than the predictions.

By metmike - Nov. 8, 2019, 8:29 p.m.
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NGI after the close on Friday:

Weather-Focused Natural Gas Futures Trade Both Sides of Even as Price Gap Expected Over Weekend


November 8, 2019


With forecasts over the weekend expected to offer potentially pivotal insight into temperature trends later this month, natural gas futures prices failed to chart a definitive move in either direction Friday. The December Nymex contract traded both sides of even on the way to settling at $2.789/MMBtu, 1.7 cents higher on the day. January added 1.4 cents to $2.873.

metmike: We could easily gap 1,000/contract higher or lower on the open Sunday Night if weather models are more decisive with the week 2 weather and its goes in one direction............mild or colder again. 

There are several factors at play. 

One of them is the bullish surprise on the Thursday EIA storage report. Whether this will continue is unknown but it sets the market up to be more sensitive to changes in temperature forecasts and adds more upside potential with extreme cold forecasts. 

I have been targeting the Sept high as an area of powerful resistance. Everytime that we got into that area this week, the market was overwhelmed with selling. It was able to get up there numerous times and sometimes stayed for awhile vs a typical top for ng, that features a big very short lived spike higher, followed by a collapse. 

If we add enough cold to the forecast over the weekend, ng can take out that top  from the get go and possibly get to $3 pretty quickly. 

I have been looking at the last few days as a selling set up on milder weather forecasts.  This has happened but the "milder" week 2 weather is more of a "less intense cold" and the cold will be aimed more at the high population areas of the East which use much more heating fuel than do the low population areas much farther west that have experienced the most intense cold recently(those areas will warm up).

The week 2 pattern, besides shifting the cold farther east here in the US  will also change in the higher latitudes, where the coldest air looks to be aimed at N. Asia vs before, being aimed at Canada and points southward into the US.  Canada in week 2, actually looks like much of the frigid air will be flushed out, so cold fronts from Canada will not be especially cold.......certainly no Arctic air with the pattern on weather models.

As long as the AO remains solidly negative, there will still be the potential for models to under forecast cold and for cold to come from higher latitudes than expected. 

Ideally, for ng to really sell off the most, we need above normal temperatures in the East, which does not look likely with the upcoming pattern, featuring an upper level ridge in the west and trough in the East, the opposite of a warm pattern for the East. 

I think that near average temperatures during the 2nd half of November, would pressure ng enough to fill the gap that was opened last Sunday Night. The top of the gap on the daily chart was the low from that trading session, 2.781 and the bottom of the daily gap is last Fridays high of 2.718.  However, we have eroded that gap and traded into it on numerous occasions the last few days as temps moderated in the week 2 forecast.

There is actually a weekly gap higher also, with the high of last week of 2.736. The lows for this week were 2.753, so around a 17 tick gap between those prices. 

Here's what can happen if the forecast turns milder the next 2 days.............a gap lower on Sunday Night very likely and this would leave a weekly island on the price charts.  5 daily trading sessions where the lowest price was higher than any price the previous week, and higher than any price the next week. 

This would be a very bad/negative formation technically on the price charts.

Should that happen, the funds will pile on next week and prices could plunge fast at a time of year when seasonals are pretty negative.  2 weeks ago, I thought we could approach $2 if November ended up very mild.

It's been too cold and we're using up way too much ng so far and prices are too high for that, unless the warmth extended well into December.

However, with the mild scenario, it seems likely we can get down to $2.4 without much trouble as those were the lows from Sept/Oct.

Below the Aug lows of 2.339 are a target under the mildest scenario........above temps in the Midwest/East.