The SMC Report – Natural Gas

March 11, 2019 4:16 pm
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 This Week’s Market Comments:

In our seasonal approach to the market, we break the year down into 4 seasonal periods.   We are now in the January-March winter period in which market decline is the predominate tendency.  In late December, we had put forth expectations for several market swings in the winter period which are discussed fully in our monthly and weekly reports.  Our assumptions going in were that we would see several large market swings with the initial one to the upside and then a final downward swing to end such movement in late February or March.

As to the current situation, as anticipated, the first January-March winter seasonal market swing was to the upside, as we had thought, and actually topped out in the mid to upper $3’s as we had targeted.  After achieving $3.722 on January 15th, it has drifted all the way back down to as low as $2.543.  The downside was facilitated by the elimination of the year-over-year storage deficit and the failure of February weather to live up to expectations in the eastern US.  We consider this deep downside to be part of the large downward swing that we anticipated would conclude our winter seasonal in late February or March.  Please review our full body of work as to our thoughts on how deep and how long this decline might go.  We consider that we are a little over 3-weeks into another modest recovery phase that is one of the anticipated countertrend bounces.

As discussed the last 3-weeks, there has been some year-over-year similarity in both fundamentals and market movement since early December, and so, we have begun referencing last year’s movement in how we think the more specific movement here in our current January-March winter is going to play out.

Looking ahead, our recovery move has now lasted 15-days off the $2.543 low from February 15, and with last year’s similar move lasting 16-days, we think we are close to seeing our current recovery move conclude and seeing the market begin drifting back down toward the $2.50’s.  As we note from time to time, market downside is much more likely in periods when the year-over-year storage comparison is improving, and because our recent late February and March cold has caused our comparison to actually deteriorate quite materially the past 3-weeks, this storage fundamental has not been conducive to downside.  Essentially the year-over-year comparison has gone from a 30 Bcf deficit to a 243 Bcf deficit and is estimated to go to as large as a 355 Bcf deficit in next Thursday’s storage report before going back into improvement mode.

Such cold weather related deterioration in the comparison again has market participants nervous about whether storage will begin the long anticipated improvement that has been generally expected to begin at some point this month and continue thereafter.  We do look for our anticipated market downside to be most apt to begin and continue in earnest once we get past this next EIA storage report.  Essentially, by then, market participants should be able to more clearly see the beginning of another trend of storage improvement similar to what we saw 2-3 months ago in the late December through early February timeframe.

A warmer temperature pattern would also help facilitate the anticipated market downside.  While weather is providing a reprieve from cold this coming week, the arctic weather pattern has really not broken down yet, and thus, a return to below normal temperatures is forecast for the following week.  Our continued opinion is that, before the end of March, we will see both storage and weather flip into more bearish trends and facilitate a downward move and a serious attempt to breach our $2.543 low from February 15th.

As to the coming week, the NYMEX natural gas futures market is currently resting only about ½-cent higher than the previous week at $2.865 after a week where it basically chopped sideways in a tight 8½-cent range and failed to extend the 3-week recovery movement any higher than the previous week’s $2.908.   As to the coming week, we look for the market to consider the Thursday storage report and 6-10 day forecasts and generally break out in one direction or the other from last week’s rather neutral trading range.         

Much more detail on projected price level and timing of market movement for our entire January-March winter season is included in our weekly SMC Natural Gas publication.  Our publication can be sampled by contacting us at (501) 240-6700 or SMCnatgas@aol.com.

Bio of SMC natural gas advisory service:

SMC is registered with the Commodity Futures Trading Commission ("CFTC") as a Commodity Trading Advisor ("CTA"), and as such, it has had the ability to trade speculatively for others and to provide advice to outside entities in regard to movement in NYMEX natural gas futures.  At this time, SMC is solely engaged in the latter activity.    

SMC was incorporated in 1988 and business endeavors have included founding, growing, and selling a natural gas marketing company, speculative futures trading, and, since 2003, a natural gas futures advisory service specializing in upcoming market movement.  All endeavors with SMC have been successful with speculative proprietary trading activity especially so.  As such, SMC market perspective and advice is backed with a successful track record in natural gas futures that began in 1991.  Please feel free to call or email SMC with inquiries or questions at (501) 240-6700 or SMCnatgas@aol.com

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This post was written by Louis Rose