March natural gas futures closed Thursday’s session lower, but still in a position to post a gain for the week. I didn’t think I’d be writing this because on Monday and Tuesday sellers were dominating the trade and the market was headed towards a key value area I had identified. However, we are in a weather market, hence, the direction of the market can change rather quickly. This seemed to be the reason for the rapid turnaround on Wednesday, December 21.
At the start of the week, the weather services were forecasting above-normal temperatures into early January. This was helping to drive prices lower. The selling came to an abrupt halt on December 21 after updated computer models suggested the predicted stretch of above-normal temperatures could end sooner than expected.
To clarify, as of late Thursday, the U.S. models were still predicting normal to above-normal temperatures. The European model indicated Tuesday afternoon and Wednesday morning that a high pressure ridge over Alaska could send Arctic cold down through the rest of North America. Based on the weak price action on Thursday, it appears that traders are still waiting for the U.S. models to confirm the new prediction.
On Thursday, the U.S. Energy Information Administration (EIA) reported that U.S. natural gas stocks decreased by 209 billion cubic feet for the week-ending December 16. Analysts were forecasting a storage decline of between 197 and 210 billion feet so the actual number fell in the extreme upper-end of the range.
Additionally, the 209 Bcf draw was more than twice the five-year average for the week which is around 101 Bcf. It was also well above last year’s 32 Bcf figure and more than the previous read of 147 Bcf.
Stockpiles now stand at 5.9% below their levels a year ago but remain 2.2% above the five-year average.
The EIA also reported that U.S. working stocks of natural gas totaled about 3.597 trillion cubic feet. This puts it around 78 Bcf above the five-year average of 3.519 Tcf and 229 Bcf below last year’s total for the same period. Working gas totaled 3.823 Tcf for the same period a year ago.
So, you may be asking why the market didn’t finish higher on Thursday, given the huge drawdown. The easy answer is that the news was already priced into the market. Everyone in the natural gas industry knew it was cold during the week-ending December 16. There was even a little carryover of the cold temperatures…