The February natural gas contract has been trading like cash at Henry Hub the last couple of days, spiking or plummeting off individual weather model runs or over the course of minutes. After a short squeeze triggered a temporary market halt yesterday, prices remained elevated overnight, pulling back gradually at first through the day before plummeting post-settle. 

While yesterday European model guidance helped trigger a short squeeze post-settle, today warmer trends led longs to the exit, as the front of the strip collapsed. Some of these losses arrived even before the settle, and the result was far fewer gains at the front of the strip relative to the back. 

Post settle that has inverted, with the February contract down the most of any 2018 contract. This helped G/H pull back after it settled at another round of record highs. 

This pullback we are seeing now fits well with our market narrative, as one theme of our Note of the Day today was a warning of potential pullbacks with short-term warming trends. Afternoon GFS ensemble guidance did warm the 8-14 Daytime frame a bit, as seen below courtesy of the Penn State E-Wall. 

Before the post-settle selling, we did see H/J move out a bit as well on the day, though it has still not taken out recent highs, indicating that even after yesterday’s short squeeze the market is not as worried about storage levels as it has been previously. 

That being said, on a historic basis H/J does remain rather wide for the time of year, being wider than every year of the past 6 at these levels besides 2014. Interestingly, though, even with H/J being that wide the actual H8 contract settled yesterday below its year-ago price. 

This is of course just one piece of the ever-changing natural gas puzzle but shows how in the context of this recent spike in prices, expectations for the 2017/2018 winter were even higher at this time last year. Of course, there still could be room for prices to run, and there is plenty of room for fireworks if any cold in February is able to be sustained. We continue to track these February cold risks closely, updating clients constantly on how short, medium, and long-range forecasts are looking and how they are likely to impact the natural gas strip. With spreads so wide and so many different influences on this market over the next month, we expect a wide number of opportunities for traders.