The ‘smoking gun’ in natgas | FT Alphaville

The ‘smoking gun’ in natgas

Nymex natgas futures rolled from the October to the November contract on Monday. The effect of which was as follows:

Natural Gas - Nymex

Nymex nat gas 3 months

The above move comes despite more than ample supply in the physical prompt market, leading analysts to increasingly speculate that the price action must be linked to fears of very cold weather this winter — something which makes those mysterious January call options at $10, taken out last month by an unknown hedge fund, much easier to rationalise. Many commentators had, in fact, appeared surprised at the time, even though we noted that the position was hardly astonishing given the sudden turnaround in weather expectations.

Stephen Schork provides a few more details with his Tuesday Schork Report:

NYMEX gas moved higher yesterday, but the action was unimpressive. Matt Rogers of Commodity Weather Group went public via Bloomberg TV with his forecast that this heating season “… could be one of the coldest winters, or the coldest, winter of the decade;” — could being the operative verb in that forecast. Matt is well respected within the gas market. He likely issued this forecast to his clients a couple of weeks ago. Therefore, this very well could be the smoking gun, i.e. the catalyst that prompted the rally in gas. After all, with gas below $2 in the cash market at the beginning of the month, how much lower could this market really go? It is not hard to imagine that a bullish weather forecast from Matt prompted utilities and marketers to cover their exposure to the winter, which in turn ignited this month’s short-covering rally. Therefore, if the rally is going to have legs, we have to see the cold. The nascent recovery in industrial demand is likely not enough to sustain the spike in price. Regardless, we will maintain our bullish bias (based on the technicals) as long as the current bullish channel holds.

Related links:
A natgas storm in a tea-cup – FT Alphaville
Natgas, literally under pressure
– FT Alphaville
U.N. weather body sees “weak to moderate” El Nino
– Reuters