Natural gas prices continue to be predominantly driven by weather, which we saw again today as afternoon weather model guidance heavily reversed prices. We have seen weather models seem to drive price action within a broad range the last two days as prices have attempted (and failed) to break out both upwards and downwards.

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This comes as we have been watching to see if cold arriving in the medium-range will have much staying power into the long-range. Our Afternoon discussion yesterday to clients highlighted why we saw prices likely remaining within a general range from $2.88/$2.92-$3.02 today, which they did as they bounced off $3.02 resistance and sold back down towards $2.92 support later today. 

Our Note yesterday morning highlighted the risk that weather model guidance would trend warmer in the long-range, like we saw today. There is evidence that the Madden/Julian Oscillation will continue driving weather patterns over the next few weeks, and we see that opening up warmer risks following the colder risks over the next week or two. 

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The key, though, is that traders need to keep a very close eye on the latest weather model guidance. We noted that in our Morning Update discussion released at 8 AM EDT, when we explained the higher likelihood that natural gas prices would sell off this afternoon following GFS and GEFS guidance that has been more bearish the last couple of days compared to the European ECMWF. 

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The verification of these market analyses shows just how weather-driven a market we are in right now as the natural gas market is hunting for the first sign of any sustained cold. Prices were able to rally significantly last week on the risk that cold could stick around into November, but now some modeling guidance is showing that the cold will not be all that sustained into November. The result is that November prices have reversed heavily on the day and sit back near support, as they are pricing in less of a weather premium over recently weak cash prices. 

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Undoubtedly, the natural gas market will continue to react (and sometimes over-react) to the latest weather modeling guidance, and the hunt is now on for when the next cold shot becomes likely.