Natural gas traders were left wondering whether it was 2014 or 2018 today after a wild trading session that at one moment triggered a temporary trading halt with the prompt month February contract up 30 cents. Much of this rally came after the settle on a run of the European ensembles that increased cold risks into mid-February, yet even before the short squeeze prices settled up significantly on the day. 

As has been the case for the past couple of weeks, the gains were clearly largest right at the front of the natural gas strip, yet today they were followed by significant gains for the March natural gas contract, and the entire strip rallied afterward as well. 

In our Morning Text Message Alert to clients this morning we noted both that our short-term target of $3.32 had been hit by the February contract already and that we expected the March contract to join in the recent rally, which played out well through the day. 

This all started yesterday afternoon when a colder run of the European ensembles showed sizable early and mid-February cold risks that we had been tracking the last couple of weeks. This led us to warn clients of short-term upside to $3.32 in the February contract off further cold. 

Then this morning in our Morning Update we broke down the weather-driven reason why our sentiment turned bullish despite relatively few changes to the GWDD forecast. Rather, we saw American guidance succumbing to a bias of too much warmth lingering in the East, and expected models to trend stronger with a mid-February cold shot. This had us putting $3.42 in play. 

Both of these trends played out perfectly on the afternoon runs of model guidance, with European guidance showing another strong round of cold building into the second week of February, and the GFS ensembles clearly trending colder in the 8-14 Day time frame, as seen below courtesy of the Penn State E-Wall. Admittedly, we undersold how much short-term upside there would be for prices off these colder trends, but they certainly did arrive on afternoon guidance. 

Meanwhile, the natural gas market continues to price in the vast majority of the cold weather risk at the front of the strip in part to price out any incremental demand, which is why the February contract has been so hot as of late. Today the G/H spread ballooned to levels that have not been seen in the shale era, with even 2014 lagging far behind. 

However, it does not yet appear that the natural gas market is expecting a full-blown storage shortage yet, with H/J still remaining a bit lower. Much of this is thanks to a couple weeks of warm weather to close out January that is letting us keep a bit more gas in storage ahead of this February cold. 

Still, another large storage draw is expected to be announced on Thursday, which will only exacerbate storage concerns temporarily with current stockpiles sitting near the 5-year minimum. 

This fear in the natural gas market became quite clear today, with the European model setting off a massive short squeeze, though it had been present for the last couple of weeks too, with prices bouncing off any colder forecast revisions and struggling to hold on to any losses. It remains incredibly clear that weather forecasts will drive major volatility in the market through the next few weeks, as the timing and intensity of any cold will determine incremental demand that may be the difference between manageable storage levels and more dangerously dwindling stockpiles in certain parts of the country. In each one of our updates for clients we break down not just our latest raw 15-Day GWDD forecast but also the upper level pattern shown on models and which way we expect them to trend, allowing clients to be prepared for each weather model run and know exactly what weather's role will be in price action, even if it is not apparent in the day-over-day GWDD changes. This helped us identify the bullish underpinnings at play today, and we will continue to very closely monitor the latest forecast shifts to see where the next price movements are from here.