NYMEX natural gas & short side speculators -- a late December update
NO SHORT COVER RALLY
In the October 12th blog post, we expressed concern that heavy short positions pointed to a short cover rally when the first cold weather spooked new short side speculators in the NYMEX natural gas contract. As the gas market developed during November & December, prices continued to fall in the Henry Hub cash market and on the NYMEX. Heating degree days showed temperatures were consistently warmer than the 30 year average (no surprise), warmer than the 10 year average, and were also warmer than in 2010.
Natural gas inventory in working storage posted weekly net injections until the last week of November. Typically, net injections into working storage swing to net withdrawals after the 1st or 2nd week of November. Furthermore, during the first two full weeks of December, net withdrawals were 45% below the 3-year average. Statistics have consistently pointed to a weak rally In the blog post of December 19, we highlighted the forecast for further erosion in natural gas prices and the growing likelihood of a price crash in 2013 and maybe as early as 2012.
Short side speculators were rewarded during November and the first half of December. Even as temperatures grow colder, production growth will persist but marketers already have 4 fewer weeks in which to liquidate inventory. IF Inventory withdrawals remain below average during January, marketers and producers will become acutely aware that 2 TCF may remain in storage at the end of winter. This winter could well be the beginning of the end with no short cover rally in cash market prices during January and a fire sale on natural gas inventory beginning in mid-February.
