On the heels of a double-digit weather-driven rally for the prompt month in Monday’s session, natural gas futures were again sharply higher in early trading Tuesday as overnight forecasts extended cold trends. The November Nymex contract was up 11.2 cents to $2.558/MMBtu at around 8:40 a.m. ET.
All overnight models trended colder, especially the American Global Forecast System (GFS), which added more than 15 heating degree days (HDD), according to NatGasWeather.
“The European model trended only slightly further colder overnight by 2-3 HDDs versus Monday afternoon’s run but up an impressive 18 HDDs versus its run 24 hours ago,” the forecaster said. The latest data early Tuesday continued to advertise a “strong cold shot across the northern U.S. late this week and this weekend” followed by “a brief break around Nov. 5-6.” Additional cold shots are expected from Nov. 7-11.
“Overall, an increasingly bullish pattern after further colder trends the past 12 hours, although we caution the GFS is likely too cold this run and could easily give numerous HDDs back” in subsequent runs Tuesday, NatGasWeather said.
A recent increase in the managed money net short position points to potential volatility this week as weather forecasts could force shorts to exit, according to analysts at Enverus.
The latest Commodity Futures Trading Commission data showed managed money increasing its short exposure last week, the analysts noted. As of last Tuesday (Oct. 22), managed money short positions increased by 19,250 contracts, while managed money long positions increased by 1,459 contracts.
In order for weather-driven strength in prices this week to translate into “extended strength” it will likely require “winter forecasts supporting demand into December,” according to Enverus. “Should the current forecast trend continue to support heating demand, there is the potential for some volatility as the speculative short position is forced to cover.”
Analysts at EBW Analytics Group similarly pointed to the potential for a “near-term short squeeze” that could push the December contract to $2.70 or higher. They highlighted colder trends further out from days 10-14 of the outlook as a potential driver of higher prices.
“By Day 15, however, the forecast still calls for blocking to start to fade, leading to milder weather in mid-November,” the EBW analysts said. “Further, we continue to expect a 100 Bcf jump in the year/year storage surplus” for the Nov. 21 Energy Information Administration (EIA) storage report. “If this scenario materializes, the winter-month contracts could quickly give back nearly all of their near-term gains.”
December crude oil futures were trading around $55.04/bbl as of 8:40 a.m. ET, off 77 cents, while November RBOB gasoline was trading fractionally lower at around $1.6655/gal.