Welcome to the cold blast edition of Natural Gas Daily!
Weather models are now showing a cold blast potential in the 15-day trend, something all natural gas traders watch closely.
As you can see in the chart above, we now have a situation where there’s an Alaska ridge and Greenland ridge to keep the cold in the high demand region. If this outlook turns to fruition, we will have our first cold blast of this winter, which would exacerbate the supply and demand fundamentals we see today.
Despite largely bearish weather, market balances still suggest a small deficit of 0.54 Bcf/d. In addition, Lower 48 production is topping out once again after reaching ~91 Bcf/d. We expect to see lower production into year-end and in Q1 2021, which would increase storage draws.
For those of you trading or following natural gas, we think the potential upside in this incoming weather set-up far outweighs the potential downside. Unlike the 2019-2020 winter when market fundamentals were firmly bearish (oversupply), we now have ourselves a situation where LNG exports are set to increase past ~11 Bcf/d, and where demand is expected to far outstrip supplies.
Now if you throw in a cold blast potential, we see Jan easily achieving $3.3 to $3.5, which represents a decent upside from today’s level.
We are positioned in BOIL as a result, and while we understand that this ETN will roll into March contracts a week after December starts, we think the timeline of the rally will be very short term in nature to begin with. If Jan contracts do reach $3.3 to $3.5, this would imply BOIL price of $37.20 to $41.23.
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. We are currently offering a 2-week free trial, so come and see for yourself why we are the largest natural gas research service on Seeking Alpha. Sign up here for a 2-week free trial!
Disclosure: I am/we are long BOIL. 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.