We are constantly tracking the latest weather model guidance alongside the latest natural gas market price action, attempting to decipher the current role of weather in the market. One way of doing that is to closely monitor movements along the natural gas strip, seeing which spreads are reacting to various prompt month price action. One spread, the October/January V/F spread, can be quite useful in determining just how much more demand the market seems to be pricing in for the middle of winter as opposed to the fall injection season. In our daily reports we track this spread, and earlier this morning we issued a Note to clients explaining why we see it as especially important recently. 

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Despite being published earlier in the trading session, the Note holds true as we see that at the settle prices had moved little from the morning note. Though we saw a rally right around noon, afternoon selling brought us right back to where we were this morning. 

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The result is that we will continue to watch this spread closely, especially tomorrow after an expected bearish EIA data print. Last week we saw a minimal 57 GWDDs, and accordingly can expect a far larger storage injection to be announced than we have seen any of the few weeks. Yet even so, the V/F spread typically does bottom around this time of year, as 3 out of the last 5 years we have seen it increase over the ensuing 21 trading days, with it remaining rather flat the other two years. 

Last Thursday the EIA print was bullish enough to break V/F out of the downtrend we were following, setting up the potential for prompt month prices to set a new short-term high, as this seasonality would seem to support. Yet we are now seeing cooler weather forecasts in the medium and long-term putting pressure on prices yet again. Will tomorrow's data help the spread put in a higher bottom?