Cycle Trading

[No-Quarter]

Welcome back! Any scratches on the paint?

FYI -

http://celsiusenergy.co/p/daily-commentary.html

Blast Off! Natural Gas Prices Soar As Early-November Temperature Outlook Trends Colder; Yes, Natural Gas Is Excessively Overvalued, But, Yes, Natural Gas Can Rally Further; Gas Demand To Rise Today As Powerful East and West Coast Storms Drive Very Active Lower 48 Pattern, Though Resulting Robust Wind Generation Could Displace Record Gas Volumes

6:00 AM EDT, Tuesday, October 26, 2021
Natural gas prices soared on Monday in response to a much colder early-November temperature outlook to once again near 13-year highs.

The front-month November 2021 contract surged a massive 62 cents or 11.7% to close at $5.90/MMBTU, the highest settlement since October 5th and just shy of that day’s 13-year high of $6.31/MMBTU. Since trading as low as $4.85/MMBTU last Tuesday, the commodity has rebounded by +22% as volatility remains high and investors on edge. Meanwhile, the December 2021 contract, which will take over as the Front-Month later this week, kept pace, closing up 60 cents at $6.06/MMBTU. The December, January, and February contracts are now all back above the $6/MMBTU level while the entirety of the 2022 futures strip is comfortably above $4/MMBTU.



https://www.celsiusenergy.net/p/natural-gas-investing.html

As becomes this case by late October, the rally was driven largely by a pattern shift in the near-term temperature outlook. Both the GFS and ECMW have converged on a solution over the past 72 hours that features consistently colder—and potentially much-so—than normal temperatures across the Deep South, Central US, and Great Lakes for at least the first week of November, disrupting what had been a consistently warmer-than-normal outlook for the past several weeks.

As a result, my Consensus Model—which integrates a performance-based average of GFS OP, GFS ENS, and ECWMF ENS data—was calling for 194 GWDDs for October 26-November 8 as of Monday evening, still the third fewest for the period in the last 5 years, but a considerable improvement from the past several weeks. As a result, I am now projecting that daily natural gas storage withdrawals will begin on or around November 4-6, which is right on time for this time of year and should put a stop to the relentless contraction of the storage deficit that we have seen for the past 4-6 weeks.

Does natural gas deserve to be priced at these levels and can the commodity rally further? No and yes. As I’ve discussed previously, storage levels will still be peaking at over 3600 BCF in the next 7-10 days, plenty sufficient to last through even a colder-than-normal winter with weak production and record LNG exports. Additionally, NOAA continues to expect generally warmer-than-normal temperatures across much of the eastern third of the nation throughout the winter, which will suppress heating demand, all other things being equal. Undoubtedly, natural gas will remain in a bull market heading well into 2022 due to multiple bullish catalysts, but with a price range of $4.00-$5.00/MMBTU that better represents that actual storage situation rather than $5.50-$6.50/MMBTU. Ultimately, I feel that Winter futures prices will converge towards the Spring 2022 strip, which are averaging $4.10-$4.25/MMBTU. That said, thanks to speculative buying, prices could still rise further in the immediate near term, potentially topping the early-month 13-year highs and even making a brief run on $7/MMBTU should November trend even colder, though such levels are unsustainable. And of course, if the long-term winter outlook falls through and temperatures verify as consistently colder-than-normal, further, more sustained gains could be in store. For this reason, I have not and likely will not add to my short natural gas position barring a move above $6.50/MMBTU. IN the meantime, I also remain aggressively long natural gas E&Ps SWN and EQT as I feel these positions are undervalued even at $4.50/MMBTU natural gas.

Natural gas demand will rise today as a highly active weather pattern dominates the Lower 48. A powerful early-season Nor’Easter will bring wind gusts to hurricane force along coastal sections from New York City to Boston as well as heavy rains in excess of 4 inches. Thanks to the coastal airmass associated with the storm, highs along the immediate coast will be seasonal with Philadelphia, PA and New York City reaching the lower 60s and Boston, MA the upper 50s, within 5F of normal. Inland, however, readings will be cooler with Buffalo, NY only reaching the upper 40s and Columbus, OH and Pittsburgh, PA only seeing the lower 50s, each 5F-10F below-average. Across the Great Lakes, Chicago, IL and Indianapolis, IN both dropped into the upper 30s overnight before recovering to near 60F today, driving some modest early-season heating demand. The West Coast will remain unsettled as well with windy, showery conditions and cooler-than-normal temperatures that will extend into the Rockies. This includes Salt Lake City, UT which will only top out near 50F today, 10F cooler-than-normal. On the other hand, it will be an unseasonably hot day across the southern Plains, including Texas, the nation’s largest natural gas-consuming state. Dallas, TX and San Antonio, TX could both reach 90F today, nearly 15F warmer-than-normal and boosting late-season cooling demand in one of the few areas that can still see meaningful fluctuations in powerburn demand. Parts of west Texas from Amarillo to Lubbock will see highs in the upper 80s, more than 20F warmer-than-normal.

Overall, today’s forecast mean population-weighted nationwide temperature will cool by -2.1F from Monday to 59.9F today, a new seasonal low though still 2.5F warmer-than-normal. Total Degree Days (TDDs) will rise to 9.1 TDDs, also a seasonal high but still just the 18th fewest for October 26 in the last 40 years since 1981, highlighting just how mild conditions have been for the past 6 weeks. Click HERE for more on today’s temperature and degree day outlook.

Based on this forecast and early-cycle pipeline data, I am projecting a +6 BCF/day daily natural gas storage injection, 2 BCF smaller than yesterday but still 0.5 BCF bearish versus the 5-year average. Gas demand will be negatively affected by what is likely to be exceptionally strong wind generation today driven by the active pattern with output in excess of 1500 GWh likely displacing upwards of 8 BCF/day of gas demand, or even more. By tonight, projected Realtime natural gas inventories will rise to 3574 BCF while the storage deficit versus the 5-year average narrows to -121 BCF. The year-over-year deficit will slide another 11 BCF to -365 BCF.