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Natural gas bulls could get a reprieve with prices heading upwards again with cold weather spotted on the horizon.

Natural gas trading

Henry Hub futures make upward progress

Fears that natural gas futures would slide below $3.00 this week appear to be unfounded.

Henry Hub January futures are currently trading for above $4.00 in the afternoon session of Monday 13th December. Prices had gained 4.00% on the day.

Could we be about to see a mini renaissance for natural gas prices?

As ever, it depends on the weather. The weekly outlook remains much the same as the last couple of weeks with temperatures across the US being higher than usual, causing gas to sink. Towards the end of the week and weekend, however, a cold front could swoop in and trigger a rise in heating gas demand.

Natural Gas Weather says: “A strong Pacific storm will pummel the West this week w/rain, snow, and chilly highs of 10s to 40s.

“However, most of the rest of the US will be much warmer than normal as strong upper high pressure rules with highs of 40s to 60s from the Midwest to the Northeast and 60s to 80s over the southern US.

“National demand will increase this weekend as a cold system tracks across the northern US w/highs of 0s to 30s, although mild to warm over the southern ½ of the US w/highs of 40s to 70s. Overall, national demand will be VERY LOW through Friday, then MODERATE this coming weekend.”

Progress!

If we look further into the future, frigid temperatures could be on the way as winter finally makes a proper introduction.

Polar vortex to rescue natural gas?

Natural gas prices are down over 40% since October. Warm weather systems have continued to act as a cooling influence on a market that was heating up all through September.

Bullish traders were crushed by the narrative of cold temperatures and tighter supplies turning out to be false.

That could all change if a polar vortex hits the US. Forecasts suggest that, towards the end of 2021 and into early 2022, we could be seeing snow and ice across the continental United States.

BMWAX, another weather service, has spotted weather patterns that are positively bullish.

“Seeing an interesting pattern developing ahead leading up to Christmas and into early January ’22, as higher pressure looks to finally re-establish towards Alaska and the North Atlantic, pushing cold from the Arctic down into the US (after a record warm start to the month),” BMWAX said.

“If the Madden-Julian Oscillation can continue to progress through phase 7 into 8 (and possibly into 1) mid to late December, this can also increase the potential for a Polar Vortex displacement event, sending more consistent cold air deeper into the US…a big risk to watch for the energy markets ahead.”

This could put the narrative back to the original winter story: cold temperatures, tight supplies. That should, ironically, light a fire under natural gas prices as was the case last winter.

If the polar vortex does reach to the deep south, we may also end up in a situation where much of the US gas production and transmission infrastructure is shuttered. Cast your minds back to early this year when Texas was blanketed by snowfall, causing some 75% or more of gas-related industry to close its doors.

Lack of gas flows means scarcity of supply means higher prices (in theory).

Therefore, gas bulls should be looking beyond a white Christmas and into the new year for real prices to pick up – assuming BMWAX’s predications come true.

A quick look at US natural gas inventories

The latest EIA gas storage report drops this week on Thursday. That will show inventories data for the week ending December 10th.

We can get a semi-preview of what to expect by looking at the most recently-released numbers, prior to the new report’s release.

The EIA states: “Working gas in storage was 3,505 Bcf as of Friday, December 3, 2021, according to EIA estimates.

This represents a net decrease of 59 Bcf from the previous week. Stocks were 356 Bcf less than last year at this time and 90 Bcf below the five-year average of 3,595 Bcf. At 3,505 Bcf, total working gas is within the five-year historical range.”

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