"When you're talking normal temperatures this time of year, you're talking heating demand. Basically, we're going to have to turn the thermostat back up and put a coat on," said Gene McGillian, energy analyst with Tradition Energy. "Whenever you see any kind of cold showing up in a forecast where you haven't seen it, there is a snap back … considering how much gas we have in the ground, the 50 cents rebound shouldn't last too long."
McGillian said short-covering added to the price spike. "We have a pretty sizable speculative short position in the market that would be vulnerable to year-end covering," he said.
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Jacob Meisel, chief meteorologist at Bespoke Weather Services, said the longer-term, eight-to-14-day forecast shows a return to above-normal temperatures, but his longer-term models show colder weather and temperatures that are even below normal. "The eight-to-14-day forecast shows much less cold than a lot of other models show in the 10- to 15- to 20-day timeframe. Any warmup is not going to be as sustained as previously expected," he said.
"The coldest temperatures look to be centered from the South to Southeast. We could see colder weather work into the Midwest and Northeast," said Meisel.
Meisel said the market volatility is the result of the uncertainty of the forecasts, as traders try to calculate winter heating demand.
"Many had thought the December warmth would linger into January and there'd be natural gas oversupply. … Now as soon as even this week, literally in four days, the South and the Southeast will be trending colder. That was what helped spike the market last week. Now we're seeing indications that another cold shot comes in week two and week three of January and it's going to elevate heating demand likely above levels many had expected for January," he said.