Last Friday marked the 31st day since the solstice. Historically, this is when we see the coldest temperatures of the season in the Northern Hemisphere. In this vein, Mother Nature is coming through for heating BTU bulls.
For instance, for our home market here in Philly, temperatures for this week are forecasted to averaged 27.7°F (-2.4°C) or 23% below normal for January. Out in Chicago, the largest space-heating market for natural gas, temperatures through the first three weeks of January are averaging 20°F (-6.7°C) or 9% below normal. With 16 inches of snow on the ground in Central Park, New York City has already hit its monthly norm with more snow on the way tomorrow.
Finally, in Florida, the largest market for petroleum-fired electricity generation, heating degree days in the state’s largest city, Jacksonville, are running 34% above normal.
Meanwhile, according to Friday’s update from the CFTC, as of last Tuesday money managers upped their bearish bets on gas by 23%! Since then, spot Nymex gas has rallied from a low of $4.432 to Friday’s $4.776 high print (+8%).
As of this writing Sunday night, the market is trading over $4.800. Needless to say, gas bears have gotten themselves in to a bit of a squeeze.
Furthermore, money managers still owned 191,203 contracts of crude oil on the Nymex for delivery at some point in to the future. That is more than 5× the current supply of oil sitting in tank at the Nymex hub in Cushing, OK. It is also around 4× the physical capacity at Cushing.
Therefore, should those guys sipping martinis at Winged Foot Golf Club last Saturday night ever decide to exchange their future obligations for physical oil, that could be a problem for them as we don’t recall any storage tanks on the West Course.
Bottom line, weather-related demand is real. The discount on cash heating oil barrels in New York Harbor to the Nymex contract narrowed by 18% last week, while on Friday, basis at the New York city gate (Transco Z6) blew out to $14.13 (97th percentile) last Friday.
Be that as it may, at the start of this week, The Schork Reportmaintains our short-term bearish view on gas and our bullish view on the liquids.
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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.