Weather Starting to Come into Focus for Natural Gas

Alan Penny

27 November 2019

3 min read

  • Natural gas historically cheap for this time of year
  • Seasonal effect in play
  • Heavy snow in Colorado and Wyoming

When you think of strong markets, natural gas probably isn’t one of them. Quite frankly, the natural gas markets have underperformed in comparison to just about everything else over the last couple of years.

This has to do in part with the fact that the Americans continue to find more and more natural gas through fracking. In fact, Americans have drilled almost 17% more this year than in the previous year. This has made supply very abundant. As a result, prices should continue to be somewhat suppressed, based on the supply/demand curve.

Cyclical trade

Remember that a huge portion of US households are heated by natural gas in the Midwest and Northeastern regions. Places like Chicago, Columbus, Pittsburgh, New York, and Boston all consume massive amounts and should be paid attention to as far as the weather is concerned.

This time of year is typically very bullish for natural gas as the demand creeps higher. Then, as soon as it gets extraordinarily cold, it shoots straight up in the air.

markets spike higher until about the middle of January, which is when traders start to focus on the spring

Ultimately, what will typically happen is that markets spike higher until about the middle of January, which is when traders start to focus on the spring. The spring months feature warmer weather, which results in less demand for natural gas. That will typically cause the market to fall apart and then drop straight to the floor.

End-of-year profits

Another thing that will drive the natural gas markets higher is the need for CTA (Commodity Trading Advisor) firms to show profits at the end of the year. While it has been a bit slow so far, it does look as if the weather is starting to help the idea of higher natural gas prices. That means the market could see a bit of a run higher between now and January 10 or so.

We are starting to see heavy snow in the middle of the United States, and therefore colder temperatures. As Thanksgiving is around the corner, it’s likely that we will start off the coldest time of the year with a bang. Heavy snow and wind have shut down roads in both Colorado and Wyoming, and we’re probably going to see more of that in the short term.

Similar forecasts for Michigan, Minnesota, and Wisconsin suggest that demand will continue to pick up from here. The stars are starting to align, so to speak, when it comes to natural gas, with plenty of pressure to the upside anticipated for this commodity.

That being said, it should be noted that the United States knows of at least 14 trillion cubic feet of supply in the ground. So, it’s only a matter of time before the market falls right back down to these levels, and perhaps even lower next year.

Written By
Alan Penny

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