Natural gas prices were able to bounce back from morning lows right near support as traders positioned ahead of options expiry at the 2:30 PM EDT settle this afternoon. As can be seen below, prices bounced off of primary support, with them now sitting right near the 10-day moving average as of 12:15 PM. 

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Part of the reason that this support level may have been so strong the last couple weeks? Cash prices at Henry Hub, Louisiana. As can be seen below, for the past couple of weeks the Henry Hub spot price has been higher than the prompt month August contract, providing support every time the future contract dipped as traders would question if/when spot prices would fall off. Whenever we have seen small dips in cash price, the prompt month has followed (briefly leading us below $2.70 support last week) but strong national heat has helped keep cooling demand and thus natural gas electrical demand elevated. 

Yet that may not tell the whole story. Over the past month we have seen later contracts along the natural gas strip rally despite the front of the strip being stunted. This continues to reflect the storage issues the market expects moving into fall and winter, as the market remains in a significant surplus. Near the front-end of the curve, this has played some role in the last couple of weeks of limiting upside just as elevated spot prices have limited downside. 

Meanwhile, we were warning clients yesterday that moves downward near the front of the curve may be weather-induced, as the reversal in the August contract yesterday was far more significant than selling across the winter strip. 

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Early this morning, this appeared to be working well, especially as overnight weather model guidance turned significantly more bearish. Cooler forecasts in the 11-15 Day period were apparent on most weather model guidance, and that was seen disproportionately impacting the front-end of the natural gas strip through much of the early morning. The early morning 6z GFS ensembles, for example, showed a more pronounced cool risk across much of the East on August 8th (per the PSU E-wall). 

Yet since 10 AM we have seen prices reverse in a rally that appeared initially remarkably back-led but then was joined by a flattening along the curve as the front end of the strip rallied as well. 

Whether this intraday movement is simply a technical reaction to option expiry and the support that front end contracts were bouncing off of or is representing more of a structural change it is too early to be sure. The fact that Population Weather Cooling Degree Days are forecast by the National Weather Service to be 26% above average through the next 7 days, with the most cooling demand nationally today and tomorrow (still keeping spot prices elevated) may very well be playing some role as well. 

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With almost 2 hours left in the trading day, there will still be plenty of time for the daily candle's look to change, and added volatility into the close can certainly be expected. In the meantime, expect the natural gas curve to continue providing hints about whether the support/resistance levels of the last couple of weeks will continue to hold.