Up until the Thanksgiving holiday energy markets seem to be supported by lower natural gas storage levels (which continued its trend last week with another larger than expected draw) and short-term weather forecasts. On Friday, those short-term weather forecasts updated with above normal weather for the majority of the US over the next two weeks (next 14 days will be approx. -54 HDD vs. the 30 year average). This, coupled with a lack of liquidity in the market caused a major natural gas sell-off on Friday as heating demand will be lower than expected and at the same time natural gas production is setting records. Then, over the weekend more updates indicated cold air blowing through the US around December 7th, which lead to erasing about half of Friday's losses as the mild weather is expected to be short-lived.
Many believe the recent volatility is due to contradicting weather forecasts. The market continues to view the cold air coming down from Canada as the main driver for this winter and given the latest models have suspended that cold air until at least the second week of December, prices are likely to remain to the downside until that weather event becomes more certain.
Updated Weather Models:
After making a large bearish move in the face of a warm start to December on the East Coast, forward markets are anxiously responding to very cold temps on the horizon for mid-December. Whether this materializes into a long term price gain for the winter will be largely determined by how well these forecasts hold up in the coming days. (GreatEastern Energy)
The market is eyeing long-range cold after some above-normal temps thru the 1st week of Dec. Most weather models are favoring a series of winter-like weather with sub-freezing temps covering large areas of the country, including the South, beginning in the 2nd week of Dec. Expect a significant number of gas weighted heating degree days to be added. (Spark Energy)
Mother nature really threw a kink to the natural gas bulls this week. ECMWF now shows that the next 15 days will be ~54 HDDs lower than the 30-year average. Total storage revision this week increased by 100+ Bcf!
Was weather bearish this week? Yes, it was very bearish. But as natural gas prices sold-off this week, the market is now implicitly saying that the risk of a cold winter is nonexistent now. Jan and Feb 2018 contracts are trading as if the warm temperatures we are seeing for the first-week of December will persist, and for anyone that's following weather forecasts closely -- that might not be the case. (HFI Research)
Changes are coming to the Bering Sea in the next 10 days as a large ridge gets replaced by a trough. Offers further support for Mid December flip to a cooler/stormier pattern in the Eastern US. (Jack Sillin | weather.us)
EIA Natural Gas storage now stands at 7.9% deficit y-o-y and 3.1% deficit to the 5 year average.