Goldman Analysts Discuss Natural Gas Futures Spike
A few days after Goldman's Thomas Evans advised clients to maintain their short positions on natural gas through December, the natural gas futures market in New York experienced a significant surge, with prices spiking up to 10%. On Friday morning, another Goldman analyst suggested that the magnitude of the surge indicates a short CTA/positioning unwinds. The price surge could have been triggered by a new cold weather forecast for the Lower 48 or reports of multiple outages from Norway to the US, which have raised concerns about a market tightening ahead of the Northern Hemisphere winter.
NatGas Futures Spike
On Thursday, natural gas futures spiked as much as 10%. From the week's low of about $2.25 per million British thermal, prices have surged 15% to as high as $2.57. Prices remain locked in a multi-year lateral base, with $3 marking a critical level to watch for a potential breakout.
Goldman's Analysis
Goldman's Tallulah Adams informed clients that the rally in natural gas futures was due to the "possibility of a less than warm November inviting a positioning unwind into a vacuum."
Adams' note further elaborated on the situation. Over the past few weeks, weather runs have consistently rolled warm and October 2024 HDDs will likely end the month as the 3rd lowest in the past 50 years. As a result, the whole curve came off in the first 2 weeks of October, led by an almost 70c selloff in X24.
Short CTA/Positioning Unwinds
The scale of the move suggests short CTA/positioning unwinds – it's hard to say that the weather runs from Wednesday alone justify this kind of move. Yesterday was also the first day of limits, so it's possible unwinding shorts ahead of 2:30 to stay under might have contributed, but the impact of that is not expected to be large.
Risk/Reward Analysis
The risk/reward at this point is a bit tough. With X now closer to 250, rather than 230, it's harder to make the argument that producers won't give more production next month and your ability to meet heating demand in the back half of winter is low and therefore you should own price.
Outages and Shrinking Surplus
Building on this note, multiple reports of gas outages from Norway to the US threatened to tighten the market further ahead of the winter heating season. Bloomberg Intelligence's Vincent Piazza and Even Lee commented on US outages and shrinking surplus.
Winter is Coming
The $3 level is on watch. Winter is coming and there are forecasts of a colder winter for the Lower 48 which may "place upward pressure" on prices.
Bottom Line
The natural gas market is experiencing significant fluctuations, with futures prices spiking and multiple reports of outages threatening to tighten the market further. The situation is complex and the risk/reward analysis is challenging. What are your thoughts on this situation? Share this article with your friends and sign up for the Daily Briefing, which is delivered every day at 6pm.
