Let's talk seasonals
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Started by Jim_M - Jan. 31, 2021, 1:22 p.m.

I contend that seasonal's are misleading.  Let's take the NG seasonal.  It would imply that prices should be rising this time of year.  

If you look at contracts for the next couple months, they are all subsequently higher than the one before them, so if NG prices do nothing more than stay stagnant, one a seasonal chart it would look like prices went up because June prices are higher than Feb prices.

But in reality, prices did not rise.  

Am I missing something?  

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By metmike - Jan. 31, 2021, 1:48 p.m.
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"I contend that seasonal's are misleading.  Let's take the NG seasonal.  It would imply that prices should be rising this time of year. "


Thanks Jim,

The natural gas seasonal is one of the strongest ones in the Spring but let me first show you that seasonal, so that you can see that ng prices, based on the average price during the 28 years below, did not turn up until the start of March....a month from now.

            

https://www.marketforum.com/forum/topic/63970/#64825

    Re: Re: Re: Re: NG 1/8/21+            

                      By metmike - Jan. 27, 2021, 11:26 a.m.            

            

Thanks Mark,

Yes, wonderful point! Prices do, VERY often see strength in the Spring, last Spring was a noted exception.

The seasonal, in many years actually turns up right around this period/here, so it could be a big factor. 

In many years, it waits, and really takes off after we are well into February. 


March and April are often very, very strong months, with it  tapering off  in May. Some years, it lasts into early June.

Natural Gas: Seasonal Play Sets Up For Springtime Option Sellers | Seeking  Alpha

                                    


            You will note on the price seasonal above that its for just SEPTEMBER natural gas. So it's not just a front month that keeps getting carried over to the new front month at the end of every month.

If we looked at just March, it would like a bit different but probably show some of the same tendencies.

Note that the price FALLS in the Winter, when the temperatures get cold and cash prices are higher. This often does happen if we have just average temperatures and almost always when its a mild Winter.

                

By metmike - Jan. 31, 2021, 1:57 p.m.
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With regards to forward prices being higher than current prices, this is fairly typical for most commodities for several reasons. With ng, its different because the Winter months are often higher than Spring/Summer  prices since there is much more demand in Winter.

Generally speaking though, all the other normal market forces favor higher future prices UNLESS there is a near term supply crunch which requires rationing of too much demand that must be accomplished with higher prices to cut that demand.......like in beans and corn right now.

The normal increase in price with time is called Contango.

When prices are higher in the front month, its called Backwardation.

https://www.cmegroup.com/education/courses/introduction-to-ferrous-metals/what-is-contango-and-backwardation.html





By metmike - Jan. 31, 2021, 2:37 p.m.
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So seasonal charts are sometimes different, depending on the month but most of them that are most useful are not just a plot of the cash price or the front month price, that goes to the next front month price.

If its the same month all year long, average over many years,  it shows the yearly tendency for just that month. 


A couple of decades ago, I used to pay $500/year from Moore Reseach, before the age of the internet to get detailed charts of every month for every commodity and trade probability rec's that had an 80%+ prob of success based on the past history.


They gave me the individual months going back 20 years, the average of all of them and the probabilities of outcomes during specific time frames.

If you traded only on this info, using 90%+ and remained very disciplined, as well as sometimes using good judgment on other factors, you could do extremely well. 

By Jim_M - Jan. 31, 2021, 2:41 p.m.
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I guess paying attention to which contract you are trading is very important.  I pulled a couple seasonal contracts off of Google images and they are all over the place.

See the source image

See the source image

See the source image

By metmike - Jan. 31, 2021, 2:50 p.m.
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This is true Jim!

Also, the time frame matters. If its from 1990 to 2010 for instance it may reflect a dynamic that changed the last decade!

Fracking of natural gas replacing Gulf production had a big impact on seasonality the last 12 years or so.