⏬NATGAS drops nearly 3.5%

Another year-end warming triggers sell-off on natural gas futures💡

U.S. natural gas drops nearly 3.5% at the start of the week, continuing a strong pullback from the end of last week. Last week, the price broke through $3.5/MMBTU in response to a massive drop in inventories, which reached 190 bcf. This was larger than standard, although it is worth noting that previous inventory changes were much smaller than standard. This leaves US inventory levels clearly above the 5-year average.

Change in US gas inventories. Last week's data showed a massive drop in inventories, which is not usually seen at this time of year. At the same time, however, we have a return to higher temperatures. Source: Bloomberg Finance LP, XTB

The change in inventories for the previous week, the data to be released this week, should show another strong drop in inventories. However, this week's data, which will be published next week, will likely already show a smaller decline. It is worth noting, however, that weather forecasts are changing all the time. Christmas week is expected to bring temporary cooling in the eastern US. On the other hand, the very end of the year is already expected to bring noticeably higher temperatures. 

Weather outlook for Christmas week. It is expected to be colder in the East, the key heating regions in the US. Source: Bloomberg Finance LP, XTB

The very end of the year, however, is already expected to bring marked warming. Source: Bloomberg Finance LP, XTB

The price of gas itself is falling just before the rollover, which will take place tomorrow after the session ends. It is worth remembering that the market is currently in backwardation. The rolled over January contract will move to the February contract, which is currently trading about 10-15 cents lower. Gas could potentially open near important support at $3/MMBTU and at the rising trendline, which is also supported by the 50-period average. Seasonality, however, continues to show a downward direction. 

Source: xStation5