With winter bearing down on key natural gas markets in the Midwest and East, the Nymex Henry Hub gas contract has never looked weaker.
Yesterday the spot market for January delivery plunged by nearly 5% after the EIA reported a 164 Bcf drawdown in inventory last week. Mind you, there was nothing bullish about the report, i.e. a 164 Bcf draw is on the extreme of the seasonal norm.
What’s more, as detailed in today’s issue of The Schork Report, we are going to see another extreme draw next Thursday as well. Be that as it may, we are now on the doorstep of the winter solstice and gas bulls are scrambling to defend $4.
As we have noted throughout October and November, the historical tendency for Nymex natural gas is to rally and then peak in the fourth quarter.
"We question if the $4.637 high print from a week ago (09-Dec) will wind up being this winter’s high print. After all, there is precedent for it."
Counter to intuition, we tend to see the highest price for consumption commodities, especially natural gas, in the lead up to the season as fear and uncertainty regarding the market’s ability to meet looming demand gets priced into the front end of the curve.
In this vein, we question if the $4.637 high print from a week ago (09-Dec) will wind up being this winter’s high print. After all, there is precedent for it. In fifteen of the last twenty heating seasons, the winter high in the Nymex Henry Hub contract was posted in the fourth quarter.
In other words, in three out of every four heating seasons the high on the Nymex was put in three weeks prior to the coldest period of the season, the fourth week following the solstice (January 21st). Furthermore, on average the winter’s high is posted on December 07th with half of the highs occurring before November 30th.
Therefore, last week’s high, if it stands — and there is reason to believe it will stand — will fall within two days of the average of the last twenty winters.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.