Despite settling decently off the lows today, December natural gas prices closed over 2% lower and are now more than 11 cents below the settle last Friday. Long-range warmer weather risk appears to be the culprit in the most recent sell-off, though enough cold risk appeared on some guidance for prices to bounce off a mid-day support level we had been watching. 

We see weather as the primary culprit for the decline since each of the last two days have seen significant declines in H/J, as weather-driven demand expectations for the end of November (and, in turn, the winter season) have decreased. 

This was not much of a surprise to our subscribers, as in our Pre-Close Update published before market close on Friday we outlined that warmer long-range trends were likely over the weekend that could pull natural gas prices lower to start the week. 

It is these further bearish weather trends, seen primarily on European guidance, that have pulled down the front of the natural gas strip and weakened the December contract disproportionately, though Z/F still remains far above previous levels. 

What we are seeing is an amazing difference between American modeling guidance and European modeling guidance. Part of this is due to their different handling in the longer-term of the Madden/Julian Oscillation, with the ECMWF ensembles trending gradually towards Phase 3 and the GEFS moving closer to Phase 1 (image courtesy of the Climate Prediction Center). 

In our Afternoon Update due out shortly we outline which of the two modeling suites is more likely to be correct and how that should influence natural gas prices into the end of the week. The long-range forecast is quite volatile, and we continue to see intraday price action driven by specific modeling runs; prices spiked late this morning off a bullish run of the 12z GFS but have pulled back on a bearish run of the 12z ECMWF ensembles. We expect this weather-driven volatility in prices to continue as modeling guidance shows little agreement into the long-range.