Celsius Tuesday
Posted: Tue Dec 13, 2022 12:02 pm
Draw forecast
-50
-82
-211. !!!!
-187 !!!
Next 4 weeks -529
Natural gas prices soared on Monday to stretch a rally to four straight sessions, but finished well off their morning highs. The front-month January 2023 contract added 34 cents or 5.4% to close at $6.59/MMBTU. It was the highest settlement since December 1 and marked a +18% gain from last Monday. However, just prior to Monday’s open, prices had traded as high as $7.06/MMBTU, up more than +12%, before giving up more than half of their gains intraday.
Monday’s rally—and subsequent retreat—was driven by the prospects of bitterly cold mid-to-late December temperatures. Over the weekend, both the GFS and ECMWF trended markedly colder, especially for December 19-25 period, with multiple reinforcing shots of arctic air extending all the way to the Gulf Coast and the major population centers of the Eastern Seaboard. As a result, my projected withdrawal for December 17-23 topped -200 BCF and the year-ending storage deficit was projected to near -180 BCF. Coupled with the return of the Freeport LNG export facility and 2 BCF/day of consistent demand sometime during this period, the bulls were ready for $7/MMBTU gas prices right out of the gates. However, buyers pressed the pause button Monday afternoon after the 12z run of the ECMWF trended warmer, especially for the first wave of arctic air for the December 17-20 period. This brought flashbacks of previous “arctic outbreaks” earlier this Fall and even last year that were pushed by the models only to back off at the last moment. Understandably, investors—having bid prices up nearly 25% over the past week in anticipation of extreme cold—were a bit jittery, prompting significant afternoon profit-taking. Additionally, traders may have also been hesitant to keep prices above $7/MMBTU with production hovering near 101 BCF/day, within 1 BCF/day of record highs. And the fact that Freeport’s return—after repeated delays and poor communication—is still questionable for 2022 may have also weighed on sentiment. Finally, natural gas inventories will be comfortable at a small storage surplus heading into the cold, which will almost certainly be able to buffer even a sustained blast of record-setting cold.
14-Day Accumulated GWDD Outlook: 5-Year Historical Comparison
Figure 2: Click here for more information on on the temperature forecast
For these reasons, I feel that yesterday’s pullback was justified—and that prices are still overvalued here. I am maintaining a downside price target of $5.50/MMBTU. If and when temperatures moderate, I expect to see heavy selling pressure—even if Freeport does return to operations this year. Before this happens though, I expect to see significant volatility. Even with yesterday’s moderating trend—which may or may not be transient—the overall forecast remains quite cold. As shown in the Figure 1 to the upper right, daily gas-weighted degree days (GWDDs) are still expected to be much above-average for December 17 onwards, through at least December 26, even after accounting for the ECMWF warming trend. And as of Monday evening, my Consensus Model—which integrates a performance-based average of GFS OP, GFS ENS, and ECWMF ENS data—was calling for a massive 564 14-day accumulated GWDDs which, as shown in Figure 2 to the right, would be by far the most for the December 13-26 period in the last 5 years, topping second place 2020 by nearly 100 GWDDs. If this forecast holds—or, certainly, if it trends colder—expect natural gas prices to make another run at $7/MMBTU.
-50
-82
-211. !!!!
-187 !!!
Next 4 weeks -529
Natural gas prices soared on Monday to stretch a rally to four straight sessions, but finished well off their morning highs. The front-month January 2023 contract added 34 cents or 5.4% to close at $6.59/MMBTU. It was the highest settlement since December 1 and marked a +18% gain from last Monday. However, just prior to Monday’s open, prices had traded as high as $7.06/MMBTU, up more than +12%, before giving up more than half of their gains intraday.
Monday’s rally—and subsequent retreat—was driven by the prospects of bitterly cold mid-to-late December temperatures. Over the weekend, both the GFS and ECMWF trended markedly colder, especially for December 19-25 period, with multiple reinforcing shots of arctic air extending all the way to the Gulf Coast and the major population centers of the Eastern Seaboard. As a result, my projected withdrawal for December 17-23 topped -200 BCF and the year-ending storage deficit was projected to near -180 BCF. Coupled with the return of the Freeport LNG export facility and 2 BCF/day of consistent demand sometime during this period, the bulls were ready for $7/MMBTU gas prices right out of the gates. However, buyers pressed the pause button Monday afternoon after the 12z run of the ECMWF trended warmer, especially for the first wave of arctic air for the December 17-20 period. This brought flashbacks of previous “arctic outbreaks” earlier this Fall and even last year that were pushed by the models only to back off at the last moment. Understandably, investors—having bid prices up nearly 25% over the past week in anticipation of extreme cold—were a bit jittery, prompting significant afternoon profit-taking. Additionally, traders may have also been hesitant to keep prices above $7/MMBTU with production hovering near 101 BCF/day, within 1 BCF/day of record highs. And the fact that Freeport’s return—after repeated delays and poor communication—is still questionable for 2022 may have also weighed on sentiment. Finally, natural gas inventories will be comfortable at a small storage surplus heading into the cold, which will almost certainly be able to buffer even a sustained blast of record-setting cold.
14-Day Accumulated GWDD Outlook: 5-Year Historical Comparison
Figure 2: Click here for more information on on the temperature forecast
For these reasons, I feel that yesterday’s pullback was justified—and that prices are still overvalued here. I am maintaining a downside price target of $5.50/MMBTU. If and when temperatures moderate, I expect to see heavy selling pressure—even if Freeport does return to operations this year. Before this happens though, I expect to see significant volatility. Even with yesterday’s moderating trend—which may or may not be transient—the overall forecast remains quite cold. As shown in the Figure 1 to the upper right, daily gas-weighted degree days (GWDDs) are still expected to be much above-average for December 17 onwards, through at least December 26, even after accounting for the ECMWF warming trend. And as of Monday evening, my Consensus Model—which integrates a performance-based average of GFS OP, GFS ENS, and ECWMF ENS data—was calling for a massive 564 14-day accumulated GWDDs which, as shown in Figure 2 to the right, would be by far the most for the December 13-26 period in the last 5 years, topping second place 2020 by nearly 100 GWDDs. If this forecast holds—or, certainly, if it trends colder—expect natural gas prices to make another run at $7/MMBTU.