Issue Time: 4:10 am EST – Wednesday, December 28th, 2016
Days 1-7 Weather Summary (Dec 28th – Jan 3rd): High pressure will dominate the central, southern, and
eastern US another day with above normal temperatures. Weather systems will still impact portions of the
western and northern US with rain, snow, and slightly cool temperatures. As one of these systems tracks
into the eastern US Thursday and Friday it will rapidly strengthen to produce a modest surge in heating
demand. High pressure will return this weekend over the East to ease national demand back below
normal. Early next week, Artic air is expected into the NW US, then spreading south and east Wed-Fri.
8-15 Day Outlook (Jan 4nd – Jan 11th): Mild conditions are expected very early in the outlook over the
eastern US but then cooling rapidly. Frigid air is expected to spread across the northern and west-central
US and then toward the South. Overall nat gas demand will be increasing to very strong levels as Arctic air
spreads across the US. Overall: Colder Than Normal Western, Central, and Northern US. Mild
Eastern US to Start, Then Colder.
Nat Gas Demand Next 15 Days: LOW Days 1-2, MODERATE Days 3-7, HIGH-VERY HIGH Days 8-15
Weather Market Threat: HIGH Nat Gas Flux Index: -20 (Bullish)
Weather Discussion & Market Effect: January ’17 nat gas futures opened around 8-9¢ higher Monday
evening, sold off in the morning, and then rallied back to close up 10¢. Today’s the last trading day on the
Jan ‘17 contract as Feb ’17 takes over a mere penny more. Mixed trends in the overnight data as the GFS
weather model was slightly cooler compared to the mid-day run, while the EC model was slightly warmer.
Although, the EC mid-day run was exceptionally frigid and was going to be very tough to match or beat.
Until then, warmer than normal conditions will continue east of the Rockies today, even as weak weather
systems with rain and snow track through. A weather system is still expected to strengthen Thursday and
Friday over the Great Lakes, Mid-Atlantic, and Northeast, resulting in a modest surge in nat gas demand.
High pressure will build back over the southern and eastern US this coming weekend into early next week
with a return to lighter demand just as frigid Arctic air begins spilling into the west-central US. As next
week progresses, the Arctic front will push south and east out of the Great Plains with much colder than
normal conditions covering almost the entire country Jan 5-8th. A relatively rare occurrence. This is likely
to drive several days of the strongest heating demand experienced so far this season and should result in
another larger than -200 Bcf draw. There are still details that need resolving, especially regarding the
timing and track of the Arctic front, but it looks like a high probability event. What’s now most important
is if additional cold blasts can follow after January 9th. The data is mixed, but there will remain very cold
air over Canada available to be tapped, but currently favors cold anomalies over the west-central US and
slight mild anomalies over the east-central US. We continue to believe the bias remains to the cool side, but
with caution since the data is flip-flopping between mild and cold solutions over the East. To our view, the
coming pattern for next week remains frigid with very strong nat gas demand returning to end the current
mild spell. As a result, we must expect supply deficits vs the 5-year average to increase rapidly in early
January, especially under this structurally tight supply/demand environment. Next week’s weather
patterns are clearly bullish after being bearish this week, but whether bullish weather sentiment continues
longer term will depend on if reinforcing cold shots can follow east of the Rocky Mountains after January
9th, which there’s potential, but far from convincing. Prices filled the gap off the Monday open earlier this
evening and then bounced, but is again testing it in overnight trade. Prices seemed to sell off the past hour
as the EC data was coming in as if the markets were disappointed in the slight milder trend. Although, this
shouldn’t have been too much of a surprise since the Tuesday mid-day run was exceptionally frigid and was
going to be very difficult to match.
Selected Weather Images -
Wednesday: Weak Systems N & S, Mild S & E
8-15 Day: Cold Spreads South & East Out of NW
Wednesday Mild Most US Except NW & Far N
Early Next Week (Jan 1-3rd) Arctic Front Into W & N-C US, Then Spreading S & E Wed-Fri.
System Strengthens Over E Thu-Fri, Mild SW
Jan 4-8th: Frigid Air Spreads Across the US. Focus Then On If Cold Shifts Over The West After Jan 9th.
Nat Gas Commentary by Prof of Finance Andrea P: Natural gas prices skyrocketed Tuesday with Jan'17
up 10¢ to settle at $3.761. The entire forward curve was higher with the front way outperforming the back
end after colder medium term weather forecasts. In fact, after this mild week, weather forecasts have
turned very cold for the 8-15 day period with much above normal HDDs. This pattern provided a floor as
prices decreased just after the pit open before bouncing, and could easily foster another rally should
forecasts hold on to cold. S/d balances weren’t as bad as one would expect with the very low demand we
usually experience around Christmas Day, especially under a mild pattern. Total demand was just below
90 bcf/d during the weekend before dropping to 86 bcf Tuesday aided by slightly looser YoY power burns
weather adjusted at 17.8 bcf. Finally, US lower 48 production was relatively flat around 71.5 bcf Tuesday.
EIA Weekly Nat Gas Storage Report Outlook Table: EIA Weekly Report Week 1 –December 29th
(Dec 16-22nd)
Week 2 –January 5th (Dec 23-29th)
Week 3 –January 12th (Dec 30th – Jan 5th)
NatGasWeather.com Forecast
-221 to -230 Bcf -100 to -115 Bcf -150 to -165 Bcf
5-Year Average -80 Bcf -107 Bcf -150 Bcf* (estimate)
Compared to 5-Year Ave Much Larger Than Normal Draw
Near Normal Draw Slightly Larger Than
Normal Draw
Recent Trend
Larger Draw Smaller Draw No Trend
BULLISH (cool) NEUTRAL (warm) BEARISH
Notes: Last week’s EIA storage draw of -209 Bcf was stronger than market estimates around -205 Bcf.
This week’s report will be factoring in a polar blast from the previous weekend and expect it will be over -
215 Bcf, allowing surpluses to shed another 130+ Bcf. The report released next week will be factoring in
milder conditions from this past weekend and this week and will be near the 5-year average. The draw
three out has an estimate for the 5-year average as we wait on new statistics for 2017 from the EIA.
Monthly Temperature Anomalies
December 1-25th Actual Temperatures vs Normal
December Forecast Totals: 915 HDD +8 CDD 30-yr Ave 896 HDD + 0 CDD Nat Gas HDD/CDD vs Normal
923 896 +3%
Temperature (HDD & CDD) vs Normal Forecasts Next 3 Months
January
February
March
Forecast: 2 CDD+1020 HDD 1022 30-yr Ave: 0 + 974 974 Total CDD/HDD vs Normal +5%
Forecast: 3 CDD+810 HDD 813 30-yr Ave: 0 + 794 794 Total CDD/HDD vs Normal +2%
Forecast: 10 CDD+630 HDD 640 30-yr Ave: 7 + 647 654 Total CDD/HDD vs Normal -2%
Observed Previous 3-Month Temperature vs Normal
September October November
Total HDD & CDD (24+240) 264 30-yr Ave (78 +171) 249 Nat Gas HDD/CDD vs Normal +5%
Total HDD & CDD 288 30-yr Ave (302 + 57) 359 Nat Gas HDD/CDD vs Normal -19%
Total 460 HDD & 25CDD 485 30-yr Ave (577 + 9) 586 Nat Gas HDD/CDD vs Normal -17%
End of Withdraw Season Supplies (April 5th):
2016/17 (NatGasWeather.com Forecast) 2015/16 (Warm Last Winter) 2013/14 (Cold Winter) 5-Year Average
1,499 Bcf 2,468 Bcf 827 Bcf
1,606 Bcf
Forecast 2016/17 HDD Totals:
October 1st – April 15th (Heating Season) December -February (Winter Season)
4,339 vs 4,408 30-Year Ave 2,745 vs 2,664 30-Year Ave
Current Nat Gas Flux Index: -20
Nat Gas Flux Strategies – (requires numerous consecutive weeks): Nat Gas Flux -10 to -40: Bullish - Buy Moderate to Strong Sell-offs
Nat Gas Flux -9 to +9: Neutral - Expect Choppy Trade or Potential Price Reversal
Nat Gas Flux +10 to +40: Bearish - Sell Moderate Price Rallies
We developed the Nat Gas Flux Index to evaluate price movements in the natural gas markets based
on changes in supply/demand dynamics. Below is a description of our proprietary Nat Gas Flux Index
and how to interpret it based on the current market situation.
How to read the Nat Gas Flux: Blue Nat Gas Flux weekly bars above zero (black line) indicate loosening, which our research has shown to historically pressure prices. When the Nat Gas Flux weekly blue bars are below zero, prices often find support. The orange line represents the price of the front month nat gas futures contract. You will clearly see when blue bars are above zero, such as during 2014 and 2015, prices were pressured and steadily fell. You will note a short-term rally in prices occurred during Dec 2015, which was based on a couple strong polar outbreaks that intimidated the market, but once they passed, prices sold back off as Nat Gas Flux remained above zero. A reversal in price occurred in March/April 2016 just as Nat Gas Flux flipped below zero, where it has remained through summer. The updated index for December 22nd has it remaining well below zero at -20 (furthest right blue bar on image). That’s not to say, there can’t or won’t be periods where prices sell-off for weeks at a time when the flux is below 0, especially after strong rallies or during mild weather conditions, much like what occurred in late July into August of this year, and what occurred this Fall season due to warmer than normal temperatures. It should be considered a weekly index, not daily, and will be updated on Friday's.
All forecasts and content within natgasweather.com reports are use at your own risk. Users assume all liabilities. Content is
not an endorsement to buy or sell stocks, options, futures, ETF's, or any financial instrument.
