Natural gas finished sharply higher last week, but contrary to some beliefs, the rally was fueled by massive short-covering or a “short-squeeze”, if you will, and not be the threat of Hurricane Dorian.
Some say that while the hurricane was sitting off the coast of Florida, it was actually keeping a lid on prices because of its threat to demand, and when it became clear that the hurricane would move north,
prices exploded to the upside as shorts scrambled to liquidate positions. Last week, October natural gas settled at $2.496, up $0.211 or +9.23%.
Currently, the October natural gas contract is trading at $2.57, up 8 cents.
Seasonality also played a role in producing the huge rally. Natural gas prices usually start to move higher around Labor Day, or shortly after the expiration of the September futures contract.
This year, the contract expired with a record amount of shorts hold positions and they had to go somewhere once the futures contract went off the board.
Short-sellers could have rolled over into the October futures contract, hoping to press the market even lower. However, many decided to buy back positions, setting in motion the short-covering rally that continued to feed on itself all week.
Prices rallied despite forecasters and analysts expressing skepticism as to whether the fundamentals supported the large gains.
With open interest falling as prices rose sharply, Powerhouse LLC President Elaine Levin described the move as a “classic short-covering rally.”
“I think the market got very, very oversold,” Levin told NGI. “It looked like some of the specs were about as short as they’d been in a long time.”
“Fundamentally, there’s a lot of gas around, but even bear markets have corrections,” Levin said. “This is the start of one. The question it does it turn into something more substantial.”
NatGasWeather analysts justified the rally to some extent by saying the fundamentals side may have offered a few reasons for the move. “Catalysts that could have aided gains,”
including new liquefied natural gas (LNG) exports, coming online and hotter trends in the forecast, NatGasWeather said Friday.
Short-Term Weather Outlook
According to NatGasWeather for September 7 to September 13, “Comfortable conditions continue across the Midwest & Northeast with highs of upper 60s to 80s for light demand.
The southern US will be hot with highs of 90s and 100s as high pressure rules for strong demand. Hurricane Dorian will bring showers to the Mid-Atlantic and Northeast Coast the next few days before exiting.
The West will cool this weekend into next week, while the rest of the country remains warmer versus normal. Overall, demand will be high across the southern US and moderate to low across the northern US.
