CME natural gas has now faded the 2011-2012 Fibonacci 62% retracement at 3.806 (continuous contract). In the wake of last week’s holiday rally to 3.933 and Wednesday’s 3.626 low print, it behooves us to take a look at history.
As illustrated in today’s issue of The Schork Report, in fifteen of the last twenty two heating seasons, the winter high in the CME Henry Hub contract was posted in the fourth quarter. In other words, nearly 70% of the time the high on the CME was put in well before the coldest period of the winter (i.e. the fourth week following the solstice). Moreover, on average, since 1990 the winter’s high is posted on December 10th; with half of the highs occurring before November 30th.
Counter to intuition, we tend to see the highest price for consumption commodities, especially natural gas, in the approach to the season. This is because fear and uncertainty regarding the market’s ability to offset looming, unknown demand, is priced into the front end of the curve.
To this effect, we have to consider: (1) was last week’s holiday (i.e. thinly traded) spike to 3.933 this winter’s high in spot gas, and (2) is the table now set for a run at the Oct/Nov roll-gap at 3.046?
In this vein, current telltales suggest the market is softening. For example, over the last week the backwardation on the cross-seasonal Mar/Apr spread was halved to 1.7 cents. In other words, supply concerns for this winter’s gas are falling.
That’s not bullish.
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