November natural gas prices sank off the board today, with the contract falling almost 5% before expiring.
Cash prices also sank significantly on the day.
The result was that the most significant losses were at the front of the natural gas strip, though those losses carried along through much of the 2018 strip as well, with carnage much further back along the strip than other recent sell-offs.
It is clear that weather continues to be a significant headwind for this market, as medium-range forecasts hold a significant amount of warmth across the East. For example, the American GFS ensembles show a significant amount of heat across the South and East on November 6th, and agreement is incredibly high (image courtesy of the Penn State Electronic Wall map site).
The result is that the X/Z spread went off the board near annual lows after recovering over the past week off short-term cold.
To our subscribers this week this was not much of a surprise. On Monday we published our Weekly Natural Gas Report where we concluded near-term downside for natural gas prices remained because of a high likelihood that weather model guidance through the week would trend warmer.
Through the week we consistently tracked the latest trends in weather model guidance and atmospheric indicators as well to determine how weather guidance would shift. It has been clear over the past few weeks that weather is the predominant driver of natural gas price action, and we see that continuing into the foreseeable future as traders gradually become even less concerned about storage levels headed into the winter (as seen in declining H/J levels).
Should cold return, we could very quickly see H/J rally, as stockpiles remain significantly below last year and 5-year average levels. However, traders need to expect a significant amount of heating demand, something that they clearly do not yet for at least the first half of November.
