More ‘Model Instability’ as January Natural Gas Called Higher

December 11th, 2019

Natural gas futures were trading slightly higher early Wednesday as more disagreement arose from the major weather models overnight. January Nymex futures were up 2.1 cents to $2.285/MMBtu shortly after 8:40 a.m. ET.

The overnight Global Forecast System (GFS) extended cold trends from Tuesday, adding 20 heating degree days (HDD) to the outlook and showing a “frigid cold shot” pushing into the northern Lower 48 states next week, according to NatGasWeather.

“However, the European model emphatically disagrees and lost 5-6 HDDs compared to Tuesday data,” advertising a “quite bearish” outlook, the forecaster said. “…It seems like we’ve seen this movie before where the GFS advertises frigid cold only to reverse course and trend back milder, as it’s done twice already this December.

“Maybe the GFS will be correct this time, but the natural gas markets are likely going to want the European model to be solidly on board if they are to believe it.”

Analysts at EBW Analytics Group similarly noted mixed signals in the temperature outlook heading into Wednesday’s session.

“Big picture: on a weekly basis, the next three weeks remain milder than normal,” the EBW analysts said. Cash prices at Henry Hub have also been “extremely soft, averaging just $2.18 despite the coldest day-ahead weather so far this winter.”

Still, an unusual amount of “model instability” for the 15-day window poses risks for prices to move either way depending on how forecasts develop, according to EBW.

“Warming weakened in days 11-15, and there are signs that a bullish Greenland block might develop by day 15,” the analysts said. “Gas prices are likely to rise modestly this morning. But continued shifts in model runs this afternoon and later this week are likely to have a greater impact, potentially moving the market in either direction.”

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