Thursday Yields Most Telling Natural Gas EIA Print In A Month
Natural gas prices were unable to sustain a weak early morning rally, instead reversing through the day and settling near the lows on the day to print out an ugly candle.
Bearish weather forecast revisions over the weekend likely played a role in this reversal, which we warned clients about this morning as we saw less heating demand through the first half of October. Our Daily Note broke that down, where we explained how a stronger La Nina signal heading into October has been complicating the forecast. One piece of this Note demonstrated how a negative Oceanic Nino Index (a measure of La Nina conditions) typically leads to less weather-driven demand in October.
Yet that is far from the only thing we are watching. Part of the reason natural gas prices are trading back in a lower range is because of a bearish EIA print last week that followed a previous bearish print as well. Over the past few weeks, we can see how the natural gas market has clearly loosened on a weather-adjusted basis.
Yet we have been cautioning subscribers against reading too much into these prints. Though there is no arguing that stockpiles are larger now than most expected them to be a month and a half ago, this is thanks in part to exogenous factors as opposed to simple market loosening. The loose print three weeks ago in part reflected demand reductions from Harvey including both decreased power demand from cooler weather/power outages and Mexican export disruptions. The print two weeks ago included demand reductions from the Labor Day holiday weekend, and this last print included Florida demand decreases from Irma-associated power outages. Finally this week, we will see a print that includes elevated GWDDs and no exogenous demand shocks.
The result, then, is that traders will be watching the number very closely, and we could see above average volatility around it. Additionally, a miss in either direction in the print could have a large reaction on short-term prices; a bearish miss would confirm we cannot blame recent loosening on storms and that power burns are not as tight as they seem, while a bullish miss would confirm that much of the previous loosening was from these previous factors and that though there is more gas in storage than expected, flows are still limited.
To view our current estimate for the EIA print due out on Thursday, as well as our daily Notes on natural gas market price action and our twice daily natural gas-focused weather forecasts, more