Cold Snap in January

The forecast changed over the weekend and is now expected to be quite cold in the beginning of January, which caused a big rally this morning at NYMEX. 

The February front month contract spiked up 23% to $4.20 US/mm but sold off some over the trading day.  Last trade $3.90.  Prices were up across the board.

Remember last year when we had a cold snap over a January weekend and prices shot up to $9 CAD/GJ for daily spot gas at Dawn.  I wonder if traders were short going into last week anticipating the warm winter only to be surprised over the weekend of the change in the forecast.  Between Christmas and New Year the trading is thin and the junior varsity squad is sitting on the desk this week, so perhaps the price move was exaggerated.  This could be a “buy the rumour / sell the news” event (so when the cold weather actually comes in January, the market sells off).  Or it could be the beginning of a bull market going into 2025.

I’m not worried about the supply of natural gas in storage this winter because according to the EIA, we still have 4.5% more gas in storage than the 5 year average. A major cold snap will go through that surplus but we will still have enough gas for this winter. That being said, I think the key going forward will be the response of producers.  If they open the taps to take advantage of the high prices and then it warms up, we could see a bear market into the first quarter like last year.  However, if they are hold tough and don’t increase production, we could see these high prices hold.

I will wait until January to decide.