Welcome to the weather matters edition of Natural Gas Daily!

Sadly, no matter how tight the market is today, natural gas prices will be at the whims of the weather outlook.

And as of today, we are in a similar supply/demand situation as 2018, but the key difference vs. 2018 is that Lower 48 production is trending lower, not higher.

So on the weather front, there really is nothing to get bullish about. You have an incoming bearish 6-10 day outlook which is largely written in stone already.

Source: HFIRweather.com

And for the 10-15 day outlook, it’s bearish with the east being warmer than normal and the west being cooler than normal.

Source: HFIRweather.com

During winter, you want a cold east, because that’s where most of your population-weighted heating degree days are. So this is not a favorable outlook.

Then we transition to the 15-day outlook, and there’s nothing to get excited there either with an Alaska trough (blue in Alaska), which foreshadows warmer than normal weather trends in the east, again, a bearish signal.

Source: HFIRweather.com

As we said after the weekend weather model updates, the outlook going forward is neutral at best and bearish biased. So while the natural gas market may be in a large deficit if the weather outlook doesn’t cooperate, it means that the upside is capped, and the downside opens up.

Given this outlook, we have December contracts falling to $2.9 to $3/MMBtu and close to where cash is currently trading. Traders we surveyed have also opened new short positions offsetting some of their long 2021 long positions.

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While we remain constructive on natural gas producers for the medium to long term, if the weather outlook deteriorates further, we could trim our position and re-enter once natural gas prices have corrected lower.

With the supply drop and structural increase in natural gas exports, natural gas investors and traders may be staring at a multi-year bull market developing in the natural gas space. Now is the time to really start looking at some of the natural gas producers that will benefit greatly from a price uplift. At HFI Research Natural Gas, we are the #1 natural gas service and we can help you navigate through what’s coming. 

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Disclosure: I am/we are long EQT. 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.

Via SeekingAlpha.com