Heading into the settle today, natural gas prices are likely to close down a bit under 2% after closing down 5% yesterday. This is also set to be the first time since mid-February that prices logged five straight down days in a row. Prices attempted to reverse this morning, but failed off the 60-DMA which has become resistance, moving back down to re-test the bottom of this channel we have been tracking. 

This move is made that much more impressive because it started following the first summer drawdown from natural gas storage since 2006, which on face value would appear bullish. However, as we had been warning for the past few weeks, once the supportive weather trends disappeared, we were likely to see prompt month prices fall off rather rapidly, as it was that heat that was keeping prices elevated. For this reason we have continued to see Henry Hub spot prices run ahead of prompt month prices as well, a signal of limited upside for the prompt month. 

Our subscribers were not caught by surprise, as our Morning Update yesterday highlighted the significant bearish weather trends that took place overnight and opened up the potential for prices to move further lower and test $2.62. 

Our update from this morning showed bearish weather risk decreasing slightly when compared to the day before, but still showed weather as likely to depress prices through the day, which is exactly what we have seen.

What have we seen on the weather front? Primarily, in the long-range we have seen bearish risk increase decently. In our report yesterday afternoon, we highlighted how cooler risk in the 6-10 Day CPC forecast had persisted from the day before, and fit in well with a number of our pieces of weather guidance. This cool risk across the South/Southeast falls over one of the most natural gas demand-intensive regions for this time of year, disproportionately impacting natural gas demand despite warm weather lingering across the Northeast. 

Similarly, we have seen Arctic Oscillation (AO) forecasts from NOAA consistently trend more negative, opening up the risk for more 500mb trough development across the eastern two thirds of the country that could limit how much heat rides up into the region late in August. 

This fits with CFSv2 climate guidance (courtesy of NOAA) showing significant cold risk across the US Week 3. The European weekly climate guidance has shown that as well, and this confidence that the heat will finally (if only temporarily) break seems to have been enough to decline natural gas prices. 

How far will they far? Much of that may depend on whether this interruption to the heat is brief or more lasting. In our Weekly Climate Update yesterday we attempted to address that, though given recent model volatility (due to a very active and convoluted pattern across the Pacific) confidence remains slightly below average. The natural gas market has seen looser scrapes and the entire strip has seen weakness, much of it led by these medium-term cooler weather trends. Now at cheaper prices, we'll have to wait to see if demand can kick back up.