Natural Gas – Weather Model Disagreement Creates Opportunity


Welcome to the big disagreement edition of Natural Gas Daily!

This week saw EIA report +81 Bcf for the week ending July 5. This was higher than our forecast of +77 Bcf and higher than the consensus average of +78 Bcf.

Source: EIA

Next Week’s Estimate

For the week of July 12, we have a preliminary estimate of +60 Bcf. EOS is now 3.61 Tcf.

Trading Position

We closed out 2/3 of our long positions this week as we go into the weekend. If ECMWF-EPS continues to remain bullish, then we see ourselves reloading the long position next week targeting upside to $2.7/MMBtu.

Weather Model Disagreement Creates Opportunity

ECMWF-EPS and GFS-ENS have seen disagreements in the past, but nothing like the one we are seeing today.

Yesterday’s price action around 1 PM EST was the sudden bearish shift from GFS-ENS, while the rally today was from the persistent bullish forecast from ECMWF-EPS.

This divergence is now going to create an opportunity for traders that take one of the views. For example, we know that the market remains skeptical of going long because if GFS-ENS turns out to be correct, then prices will likely drop back to $2.25/MMBtu.

But if ECMWF-EPS is correct, which is nicknamed “king euro” for being more right than wrong, then we see natural gas prices going to $2.7/MMBtu.

The key is to watch for the consistency of the forecast from the Euro model. If over the weekend, we see the bullish projections continue, then we see ourselves reloading back the long positions we sold off this week. We see natural gas in an uptrend right now, so prices should continue to grind higher if the weather models are supportive.

This large disagreement in the models is creating an opportunity for traders. We will be looking to take advantage of this disconnect.

We will be watching weather models closely, so if you are trading natural gas and need guidance on weather, fundamentals, and trader positioning, we think you should sign-up for HFI Research Natural Gas. Sign-up here now.

Disclosure: I am/we are long UGAZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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