Monday, December 28, 2015

"Natural Gas Rises on Signs of Rebalancing Market"

We started sniffing at the bullish side of the market with Dec. 14's "Natural Gas: Arctic Oscillation Index Turns Negative".

A positive Arctic Oscillation keeps the cold closer to the pole and, although this depiction gets some of the terminology wrong, it ends up looking like this:
Wall Street Journal via ZeroHedge, Dec. 18
A negative AO allows the colder air to come south and then all you have to do is figure out where in the Northern Hemisphere the Jet Stream will guide it.
Here's the Current Arctic Oscillation Index, again coming down toward negative:

Observed Daily Arctic Oscillation Index.
And here's the Headline story from the Wall Street Journal:

Natural gas prices surge to a three-week high
Natural gas prices surged to a three-week high, adding to a recent string of big gains as colder weather and other signs point to a more balanced market in the weeks to come.

Futures for January delivery recently traded up 15.2 cents, or 7.5%, at $2.181 million British thermal units on the New York Mercantile Exchange. It would be the third session of five in which gas gains more than 5%. The market is now up 24% in just six sessions since it settled at a 16-year-low on Dec. 17.

Exceptionally warm forecasts are starting to give way to the first signs of winter cold, keenly important in a market driven by the demand for winter heating. Above-normal temperatures are still going to linger in large parts of the East Coast--and many of the biggest markets for gas heat--but cold from the west is starting to spill into big Midwestern heating markets, too.

There are also signs that gas producers are also making a stark pullback from record-high production. The latest count of working natural-gas rigs, released late Wednesday, showed another decline, putting the number of working rigs at the lowest point ever in 28 years of data gathered by Baker Hughes Inc. It has fallen 16% in three weeks, even from numbers that were already near a record low.
These changing trends have pushed many bears to cash out and lock in profits from the steep drop in prices this fall. Since August, money managers have had nearly two bearish positions on gas for every one bullish position. A market leaning that heavily in one direction is often vulnerable to these types of sharp rallies as those traders have to buy back contracts to close out positions....MORE
When we posted the AO story we did something we try not to do, we hedged as to the timing and posted both the January and February prices where usually we only use the front month, make a declarative statement and figure our readers are smart enough to go further out on the calendar or put together some fancy spreads or use the options on the futures as may be their wont.

As pointed out on the 15th:
"Warm Weather Crushes Natural Gas, Prices Fall To Nearly 17-Year Low"
 Not there yet* but you can see the change coming.
*which is why we also quoted the Feb. futures in that post.
So here are the soon-to-roll-off January's and the soon to be front-month February's:
2.227 +0.198
2.257 +0.178

Possibly also of interest:

Natural Gas: Ahead of Today's Storage Report, Platts Looks at the Market

Natural Gas: "...What It Will Take to Balance the Gas Market in 2016"